“Microchip Technology is setting up a classic follow-on buy point after its initial breakout, and the technicals are aligning for another leg higher,” says Mark Minervini, two-time U.S. Investing Champion and author of Mindset for Trading. “The consolidation pattern is tight, the relative strength is holding, and volume patterns are constructive.”
Shares of the Chandler, Arizona-based chipmaker (ticker: MCHP) are trading just below a potential buy point at $102.50, according to IBD MarketSmith. The stock is setting up a follow-on entry after a 34% rally off its October 2023 low. This is a stock that’s already delivered for early buyers — but the question is whether there’s more fuel in the tank.
Microchip was named IBD Stock Of The Day earlier this week, a designation that signals strong fundamentals and improving technical action. The stock is trying to clear a short consolidation above its 50-day moving average, which would mark a follow-on buy point — a second chance for investors who missed the initial breakout from a cup base in November.
Look, I get it. Nobody likes chasing stocks. But follow-on entries are how the big money gets made in sustained uptrends. And Microchip has the earnings to back it up.
Fundamentals That Back the Chart
Microchip Technology reported fiscal third-quarter earnings on Jan. 30. Earnings per share came in at $1.68, beating estimates by a penny. Revenue was $1.89 billion, down 1.8% year over year — hardly explosive, but the company is navigating a tough semiconductor cycle better than most.
The company’s earnings per share growth has averaged 27% over the last three quarters, and the IBD Composite Rating is a sky-high 97 out of 99. The stock also boasts an A- Accumulation/Distribution Rating, meaning institutional investors are buying. That’s the kind of big-money support you want behind a breakout — or a follow-on entry.
But here’s the rub: the broader semiconductor sector has been choppy. The Philadelphia Semiconductor Index (SOX) is up about 10% year to date, but it’s been a rollercoaster ride. Microchip’s relative strength line, however, is near new highs. That’s a sign that the stock is outperforming the market — and its peers.
“Microchip has carved out a niche in non-volatile memory and microcontrollers that is less tied to the boom-bust cycles of DRAM and NAND chips,” explains Kinngai Chan, senior semiconductor analyst at Summit Insights Group. “Their recurring business model, where a significant portion of revenue comes from long-term supply agreements, gives them visibility that many chip companies lack.”
That recurring revenue model is a big reason why Microchip was one of the first chip stocks to recover from the 2022 downturn. While companies like Intel and AMD were slashing guidance, Microchip was raising it.
Technical Setup: The Anatomy of a Follow-On Buy Point
The follow-on buy point — also known as a breakout from a three-weeks-tight pattern — is one of the most reliable setups in the CAN SLIM investing system popularized by Investor’s Business Daily. After a stock breaks out of a base and rises 20% to 25% or more, it often consolidates for a few weeks. If it can then break out of that short consolidation on heavy volume, it’s a second opportunity to buy.
Right now, Microchip is in that sweet spot. Its consolidation over the past three weeks is tight — the weekly price range has been narrowing. The buy point is around $102.50, which is just above the March 5 high of $102.16. If Microchip can close above that level on volume at least 50% above average, the follow-on entry is triggered.
“The risk-reward is appealing because the stock has already proven it can handle selling pressure,” says Minervini. “You’re buying into strength, not chasing a low. The stop-loss should be around $96 to $97, which limits downside to about 5-6%.”
That’s a disciplined approach — something many retail traders forget when they see a stock starting to move. (I’ve been guilty of FOMO entries myself. We all have.)
For context, the current market environment is supporting growth stocks. The Nasdaq Composite is up 8% year to date, and the S&P 500 is hovering near all-time highs. Microchip’s beta of 1.3 means it tends to amplify market moves — upside and downside.
In an interesting twist, the semiconductor industry has been a flashpoint in U.S.-China trade tensions. That’s created both risk and opportunity for companies like Microchip. While tariffs and export controls can disrupt supply chains, they also incentivize domestic chip production. Microchip’s U.S.-focused manufacturing base is an advantage here. Meanwhile, Chinese tech giant Alibaba is suing the U.S. government over a military blacklist designation — a reminder of the geopolitical crosscurrents that can buffet any chipmaker.
What the Analysts Are Saying
Wall Street is largely bullish on Microchip. The stock has a consensus rating of Buy, according to FactSet, with an average price target of $117, implying about 15% upside from current levels around $100. But there are skeptics.
“Valuation is a concern,” warns Chris Caso, semiconductor analyst at Wolfe Research. “At 28 times forward earnings, Microchip is not cheap. The premium over the S&P 500’s multiple is justified by its growth trajectory, but any earnings miss could compress that multiple quickly.”
Caso has a Hold rating on the stock. His caution underscores the need for a strict stop-loss — something every trader should have anyway.
On the bull side, Citi Research analyst Christopher Danely recently raised his price target from $105 to $115, citing “improving demand signals in automotive and industrial end markets.” Microchip’s microcontroller chips are used in a wide range of applications, from cars to medical devices to home appliances. Automotive accounts for about 30% of revenue, so the sector’s shift to electric vehicles and advanced driver-assistance systems is a tailwind.
Microchip’s management has also been active with capital returns. The company has boosted its dividend for 11 consecutive years and authorized a $1.5 billion stock buyback program in January. That’s a signal of confidence from the C-suite — and it helps support the stock during pullbacks.
The stock’s action this week is also influenced by the broader macroeconomic narrative. The latest Producer Price Index (PPI) data on Wednesday came in hotter than expected, raising concerns that the Fed may delay rate cuts. That hit growth stocks across the board, but Microchip recovered quickly. As of Thursday’s close, the stock is up 0.4% for the week — outperforming the SOX.
One narrative that’s gaining traction in the investment community is the role of AI in semiconductor demand. Microchip may not be an AI chipmaker like Nvidia, but its microcontrollers are essential for edge computing and IoT applications. Stanford was their golden ticket for many engineers now pushing AI into the embedded world — and Microchip’s products are the silicon foundation for that shift.
Bottom Line: Is Now the Time to Buy?
For traders following a disciplined system, the follow-on buy point at $102.50 is worth watching. The stock has the fundamental strength, institutional support, and technical setup to justify a position. The key is to wait for the breakout to occur on big volume — no premature entries.
For longer-term investors, dollar-cost averaging into Microchip during weakness has historically worked well. The company’s free cash flow margin of 30% and debt-to-equity ratio of 0.6 are signs of financial health. And with the semiconductor industry projected to double in size by 2030, Microchip is well-positioned to ride that wave.
But nothing is guaranteed. The market is fickle, and a sudden shift in sentiment — say, a hotter-than-expected CPI report next week — could derail the setup. That’s why risk management matters more than predicting the future.
As Minervini puts it: “The market is always right. Your job is to align yourself with its direction, not fight it. Microchip is showing you the way right now.”
Whether you’re a day trader or a buy-and-holder, Microchip’s follow-on buy point offers a clear, measurable entry. The data is on the table. Now it’s up to you to act.
Frequently Asked Questions
What is a follow-on buy point?
A follow-on buy point (also called a three-weeks-tight pattern) occurs after a stock has already broken out of a base and risen 20-25%. It then consolidates for at least three weeks with tight weekly price ranges. A breakout above that consolidation on heavy volume provides a second chance to buy into the uptrend, often with less risk because the stock has already proven its strength.
Is Microchip Technology a good long-term investment?
Microchip has strong fundamentals: a 97 IBD Composite Rating, 11 years of dividend increases, a recurring revenue model with long-term supply agreements, and exposure to growing markets like automotive and IoT. However, it trades at a premium valuation (28x forward earnings), so investors should consider their risk tolerance and use position sizing to manage downside. Many analysts see upside to $115-$120 over the next 12 months.
What are the key risks for Microchip stock?
Key risks include: a prolonged semiconductor downcycle, U.S.-China trade tensions that could disrupt supply chains, a potential economic recession that reduces demand for chips, and the stock’s high beta (1.3) means it can fall faster than the market. Additionally, if interest rates stay higher for longer, growth stocks like Microchip may face valuation compression.