The Chip Index Has Been Slashed, but These 3 Stocks Have a Path Back
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On the November 9 episode of CNBC’s Fast Money, a panelist said that 14 out of the 30 members of the Philadelphia Semiconductor Index were down over 50%. Individual damage is easy to confirm. Teradyne (NASDAQ:TER | TER Price Prediction) trades 84.9% below its 52-week high of $487.91, and Microchip Technology (NASDAQ:MCHP) and STMicroelectronics (NYSE:STM) are each more than 70% off their highs. Skyworks Solutions (NASDAQ:SWKS) has held up far better: at $90.03, it trades just 3.6% below its 52-week high. The three stocks that fell sharply did so for different reasons, and each one has a dated event that will either support or undercut its recovery.
Microchip Technology: Demand Runs Ahead of Capacity, and the March Quarter Will Show Whether That Pays Off
What Went Wrong
Microchip trades at $62.08, down 15.9% over the past month. The latest drop came after the September-quarter earnings report, even though the results beat estimates. Non-GAAP EPS of $0.97 came in above the $0.94 consensus, and revenue rose 42.2% year over year. The outlook is what hurt. December-quarter sales guidance of $1.573 billion to $1.638 billion means a midpoint down 1% sequentially, and non-GAAP gross margin is guided to 64.0% to 65.0%, down from 66.5%. About $53 million of September revenue came from one-time items recorded at 100% gross margin, and none of it repeats.
The more important problem is supply. On the November 5 call, CEO Steve Sanghi said, “demand is stronger than the capacity available” and that “AI has been crowding out capacity for trailing edge nodes.” Lead times now run six to 32 weeks, and orders placed inside those lead times are going unfilled. (That capacity squeeze is a boost for the suppliers feeding the data-center expansion, which we profiled in a free report on seven non-chipmaker winners of the AI boom.)
Catalysts
The March-quarter guidance, due with the next earnings report, is the key catalyst. Sanghi said, “the backlog for March quarter today is much better than December quarter was at the same point in time,” and book-to-bill stayed well above one. Microchip also has two other growth drivers:
- PCIe Gen 6 switch and retimer design wins reached 24, up from 12 at the end of the June quarter.
- The company closed its Hailo acquisition in edge AI on September 17 and its Vorago Technologies acquisition in radiation-hardened chips on October 8.
Data Point
The stock trades at 16 times forward earnings and 47 times trailing earnings. That gap reflects how far earnings are expected to recover from the bottom. The consensus analyst target is $86.48.
What Has to Go Right, and What Would Break the Case
New outsourced assembly and test capacity has to come online on schedule in the March and June quarters so the backlog turns into revenue. Margins have limited room to help: Sanghi said to “think of 65% as a long-term gross margin,” which means the recovery depends on revenue. The case fails if March-quarter guidance shows another sequential decline, if gross margin falls below the December range as supplier price increases arrive starting in January, or if Hailo’s losses and higher R&D spending outweigh what it adds to revenue.
Teradyne: Investors Sold a Record Quarter, and Customer Ramps in 2027 Need to Arrive on Time
What Went Wrong
Teradyne trades at $263.75, down 31.3% over the past month. Third-quarter non-GAAP EPS of $2.29 beat the $2.05 consensus, and revenue rose 69.8%. Shares still fell about 6.6% after the report. Fourth-quarter guidance of $1.25 billion to $1.35 billion in revenue and $1.95 to $2.25 in non-GAAP EPS suggested growth was leveling off after a year in which Teradyne expects revenue of about $5.2 billion, up over 60%. Management also said quarterly results can be uneven because they depend on when computing customers place orders.
Catalyst
The catalyst is planned capacity ramps at hyperscale customers that are adding Teradyne as a second test supplier. CEO Greg Smith said on the October 28 call that the first hyperscaler’s next major ramp is expected in the middle of 2027. A second hyperscaler has passed qualification, with capacity purchases expected in the second half of 2027, and a third is in qualification. Management also promised an updated financial model at its next earnings call. Spending on chipmaking equipment supports the case. On November 12, Applied Materials (NASDAQ:AMAT) reported fiscal fourth-quarter revenue of $10.41 billion, above the $10.30 billion consensus and up 53.1%. It guided fiscal first-quarter revenue to $11.10 billion, plus or minus $500 million. Teradyne says test equipment’s share of semiconductor capital spending rose from 6.4% in 2025 to 8.1% in the first eight months of 2026.
Data Point
Teradyne trades at 20 times forward earnings and 30 times trailing earnings, against a consensus target of $415.88. The stock has gained 24.0% over the past week, so part of the rebound has already happened.
What Has to Go Right, and What Would Break the Case
CFO Michelle Turner said, “Where we sit today, we expect each quarter next year to grow compared to 2026.” Robotics also has to stay profitable after posting $96 million in third-quarter revenue. The case fails if first-quarter 2027 results show no growth, if a hyperscaler ramp slips past mid-2027, if memory test orders turn out to have been pulled forward and leave a gap, or if tighter U.S. export controls on chip equipment cut into sales to China.
STMicroelectronics: Closing Old Fabs Is the Key to Margin Recovery
What Went Wrong
STMicroelectronics trades at $46.46, which is still up 78.3% year to date because it started 2026 at $25.79. Most of the drop happened over the summer: the stock was at $67.66 when the July 23 filing came out and at $51.86 by the August 19 filing. First-half 2026 results showed a net loss of $171 million, driven by a $419 million unrealized charge on a convertible bond derivative. Third-quarter non-GAAP EPS of $0.37 came in below the $0.41 estimate. Gross margin of 37.3% was held down by about 60 basis points of charges for unused capacity.
Catalyst
A restructuring program will close four older fabs and move production to newer 300mm and 200mm facilities. CFO Lorenzo Grandi said ST still expects “more than 400 basis points of structural gross margin improvement,” coming “as a step function either toward the end of 2027 or in early 2028.” Demand is improving while that work goes on. Fourth-quarter revenue is guided to $4.15 billion with gross margin of about 39%. The backlog is well above $20 billion, and data center revenue is expected to reach about $1.3 billion in 2026 and well above $2 billion in 2027.
Data Point
Shares trade at 18 times forward earnings and 82 times trailing earnings. The trailing figure is inflated by the convertible charge and restructuring costs. The consensus target is $70.96.
What Has to Go Right, and What Would Break the Case
Customers have to approve the move to new fabs for three of the plants being closed, and fourth-quarter revenue needs to come in near guidance. The case fails if qualification delays push the fab closures past early 2028, if Power & Discrete losses get worse, or if S&P’s BBB+/negative outlook becomes a downgrade. Settling the convertible bonds also costs $750 million in cash plus new shares, which dilutes existing holders.
Microchip Has the Clearest Path Back
Of the three, Microchip has the strongest comeback case. Its problem is a supply shortfall, and it already has backlog scheduled into the March quarter. Its next earnings report will show quickly whether that backlog becomes revenue. Teradyne comes second, since its recovery depends on hyperscaler ramps that management does not expect until mid-to-late 2027. STMicroelectronics has the longest wait, because its margin improvement depends on fab closures that its own CFO does not expect before the end of 2027.
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Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.
Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community.
Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.
Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, moderating workshop sessions at regional conventions.
