Microchip Technology: New AI Story In The Making
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Dair Sansyzbayev9.77K FollowersFollow5ShareSavePlay(9min)CommentsSummaryMicrochip Technology (MCHP) is rated 'Strong Buy' as AI-driven data center growth offsets legacy business weakness.MCHP's profitability is rebounding, with EBITDA margins above 20% and strong free cash flow generation despite recent sales declines.Management targets a return to 40% operating margin and is launching a 3nm PCIe Gen 6 switch to strengthen data center leadership.DCF analysis suggests MCHP's fair value is nearly 50% above current market cap, with conservative FCF growth assumptions.
Mehmet Selim Aksan/DigitalVision via Getty Images Despite the boom of the last few years across stocks of the large semiconductor players, shares of a notable industry player like Microchip Technology Incorporated (MCHP) delivered a negative total return sinceThis article was written byDair Sansyzbayev9.77K FollowersFollowI am a highly experienced Chief Financial Officer (CFO) with a strong background in the oilfield and real estate industries. With over a decade of experience in finance, I have led numerous complex due diligence efforts and M&A transactions, both domestically and internationally.In recent years, I have developed a keen interest in equity research and analysis of public companies. This interest has led me to render equity research services for a Dubai-based family office with over $20 million in assets under management (AUM). My expertise in finance allows me to provide valuable insights and recommendations to clients seeking to make informed investment decisions.I pride myself on my ability to analyze financial statements, evaluate market trends, and identify key drivers of growth in different industries. I am passionate about staying up-to-date on the latest developments and trends in the equity research industry, and I am always seeking to enhance my skills and knowledge through continuing education and professional development.Analyst’s Disclosure:I/we have a beneficial long position in the shares of MCHP either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does MCHP's data center momentum impact its investment thesis?Accelerating AI-related data center revenues are offsetting legacy business softness, positioning MCHP for renewed revenue and EPS growth and supporting a bullish outlook.What are the key margin and cash flow trends for MCHP?EBITDA margins have rebounded above 20%, well above sector median, and trailing twelve-month free cash flow remains robust at $1 billion, indicating resilient profitability.What valuation upside does the DCF model suggest for MCHP?A conservative DCF model values MCHP at $53 billion, nearly 50% above its current market cap, highlighting substantial upside potential based on future FCF growth.Recommended For You