What Happened?
Shares of analog chipmaker Microchip Technology (NASDAQ: MCHP) fell 9.8% in the afternoon session after the company issued a weak financial forecast for its upcoming fourth quarter, which overshadowed third-quarter results that beat expectations.
Microchip projected fourth-quarter revenue to be approximately $1.13 billion, falling short of Wall Street's consensus estimate of $1.18 billion. The company's cautious outlook reflects weakening demand as customers in the automotive and industrial sectors continue to work through excess inventory. While the third-quarter results were better than anticipated, with adjusted earnings per share of $0.35 beating estimates by two cents on revenue of $1.14 billion, investors focused on the bleak guidance. In reaction to the forecast, at least six brokerages, including Truist and Stifel, reportedly cut their price targets on the stock.
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What Is The Market Telling Us
Microchip Technology’s shares are very volatile and have had 23 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock dropped 3.2% on the news that investors reassessed stretched valuations following a period of strong gains, sparking a broad sell-off. The tech-heavy Nasdaq fell as much as 1.6%, with the S&P 500 also declining. The pullback was exemplified by AI firm Palantir Technologies, which dropped over 7% despite reporting better-than-expected sales. This negative reaction to positive news suggests investors are concerned about extreme valuations and are engaging in "long liquidation"—selling positions to lock in profits after a significant rally. Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.
Microchip Technology is down 4.1% since the beginning of the year, and at $54.54 per share, it is trading 27.5% below its 52-week high of $75.26 from July 2025. Investors who bought $1,000 worth of Microchip Technology’s shares 5 years ago would now be looking at an investment worth $862.22.
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