Microchip Technology's data center revenue grew 97.8% year over year in its fiscal first quarter, and the chipmaker now expects the segment to reach about $1 billion in calendar 2026. Shares jumped about 14% after the company also reported total net sales up 38% and a swing back to GAAP profitability.
Microchip Technology's shares jumped about 14% Friday to about $85. The move followed a fiscal first-quarter report in which the company's data center revenue grew 97.8% year over year, accelerating from 77% growth the quarter before. Total net sales rose 38% year over year to $1.485 billion, above the high end of management's guidance and up 13.2% sequentially.
Data center portfolio targets $1 billion
Management now expects its total data center portfolio to reach about $1 billion in calendar 2026, up 69.3% from last year. That target builds on a $591 million base of broader data center exposure in calendar 2025, according to Crypto Briefing. CEO Steve Sanghi pointed to the March 2026 quarter as evidence of sustained acceleration, citing 62.9% year-over-year growth in that period.
Within the target, the Data Center Solutions unit is expected to grow about 65% this year to roughly $500 million, up from $302.7 million in calendar 2025, with the rest coming from catalog products such as power-management and timing chips sold into data centers. Data center and compute now make up about 18% of Microchip's total revenue. Meanwhile, PCIe Gen 6 connectivity design wins doubled sequentially, from six programs to 12 exiting the quarter, a pipeline that should convert into revenue as customers' systems ramp over the next couple of years.
Profit recovery outpaces sales growth
The profit rebound moved faster than sales because many of Microchip's costs are fixed. Non-GAAP gross margin reached 63.8%, up from 61.6% the previous quarter. Adjusted earnings per share rose 181.5% to $0.76 from $0.27 a year earlier. On a GAAP basis, the company swung to net income of $202 million from a loss of $46.4 million a year earlier.
Other signals pointed the same way. Inventory days fell from 185 to 175 during the quarter, and bookings ran ahead of shipments. The company also cut net debt by about $170 million and paid $246.9 million in dividends.
Guidance points to more growth
Management guided for September-quarter sales to rise 7% to 9% sequentially. At the midpoint, that would mark year-over-year growth of about 40.6%. Against the past year's depressed GAAP earnings the stock costs well over 100 times earnings, but measured against expected earnings over the next 12 months, it costs about 21 times.
The dividend, $1.82 per share annualized, gives shareholders a 2.15% yield while they wait to see if the recovery holds up.
Sources: The Motley Fool, Crypto Briefing
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