Microchip Technology Posts Record Q2 Sales but Below-Consensus Q3 Guidance Sends Stock Sliding

Microchip Technology reported fiscal second-quarter net sales of $1.622 billion for the period ended September 30, 2026, beating the high end of its own guidance and marking growth of 42.2% year over year and 9.2% sequentially. Non-GAAP EPS came in at $0.97 per diluted share, four cents above the midpoint of guidance and ahead of the FactSet consensus of $0.94. Non-GAAP gross margin for the quarter was 66.5%, and non-GAAP operating income reached 39.5% of sales.

Despite the strong quarter, the stock slid sharply on November 6 after management issued a cautious December-quarter outlook. Guidance calls for net sales to range from down 3% to up 1% sequentially, with a midpoint of down 1%, which translated to year-over-year growth of about 35.4% but came in below analyst expectations. Management noted that roughly $53 million of infrequent revenue items recognized in the September quarter will not repeat in December, and that supply constraints are delaying shipments of higher-margin products. Non-GAAP gross margin for the December quarter is guided at 64% to 65%, down from 66.5%, with non-GAAP EPS expected between $0.87 and $0.95.

Several Wall Street firms cut their price targets on the stock following the results. Cantor Fitzgerald lowered its target to $100 from $125, citing margin pressure. Citigroup trimmed its target to $75 from $95. Truist cut its target to $62 from $90 while maintaining a Hold rating. KeyBanc and Rosenblatt also reduced their targets, to $120 from $135 and to $115 from $120, respectively. Shares fell roughly 14% on the day, touching a low of $54.83 and pushing the annualized dividend yield above 3% based on the declared quarterly payout of 45.5 cents per share. Management maintained its long-term non-GAAP targets of 65% gross margin, 25% operating expenses and 40% operating profit, pointing to expanding backlogs and design wins in industrial and data center markets as evidence of underlying demand strength.