What Happened?

Shares of analog chipmaker Microchip Technology (NASDAQ: MCHP) jumped 2.5% in the morning session after a sector-wide rally driven by strong earnings from peer chip designer Broadcom (AVGO). 

Broadcom, a key player in the semiconductor industry, reported robust earnings and indicated that demand for its AI-focused chips is surpassing expectations. Following the news, Broadcom's shares surged, lifting sentiment across the chip sector. This positive report from an industry peer suggests healthy demand for semiconductor products, particularly those related to artificial intelligence, which benefits other companies in the space like Microchip Technology. The rally was also supported by broader market optimism after a jobs report reinforced investor expectations for a potential interest rate cut.

After the initial pop the shares cooled down to $66.13, up 2.7% from previous close.

Is now the time to buy Microchip Technology? Access our full analysis report here, it’s free.

What Is The Market Telling Us

Microchip Technology’s shares are very volatile and have had 22 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 24 days ago when the stock gained 6.3% on the news that the semiconductor sector rallied in intraday trading as a favorable inflation report bolstered investor hopes for a potential Federal Reserve interest rate cut. 

The Consumer Price Index (CPI) data showed a slowdown in inflation, fueling a broad market rally that pushed the S&P 500 and Nasdaq to new all-time highs. For the capital-intensive semiconductor industry, the prospect of lower interest rates is particularly welcome, as it can reduce borrowing costs for expansion and research and development. The positive macroeconomic sentiment provided a significant tailwind for the entire sector, as investors anticipate that a more accommodative monetary policy from the central bank will stimulate economic growth and demand for technology.

Microchip Technology is up 16.3% since the beginning of the year, but at $66.13 per share, it is still trading 17.9% below its 52-week high of $80.59 from September 2024. Investors who bought $1,000 worth of Microchip Technology’s shares 5 years ago would now be looking at an investment worth $1,286.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.