Microchip Technology IncorporatedMCHPNASDAQ

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $77.24 per share(market-calibrated)

+3.9%

Upside to Fair Value

Current

$74.31

Pure Model

$76.12

Fair Value

$77.24

Bull Case

$102.89

Bear Case

$53.58

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

6.12%

Calibrated Growth

4.10%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $76.12.

What's Driving This Ratingfor MCHP

↓

CapEx normalizing toward maintenance

Historical CapEx is 6.18% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$16M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 22.94% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.2B (24.46% margin).

→

Moderate revenue growth

Analyst consensus projects 5.97% revenue growth, fading to 3.75% by Year 10. Revenue reaches $9.0B (vs $4.4B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $51.52/share (16.6x terminal FCF) while exit multiple gives $100.72/share (39.8x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $74.31, the market implies 6.12% perpetual growth — 237bps above the model's 3.75%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 70.36% indicates efficient cash generation. FCF reaches $3.0B by Year 10 (32.96% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.44

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.97%

Cost of Debt

Pre-tax Cost of Debt4.47%

Tax Rate30.00%

After-tax Cost of Debt3.13%

Equity Weight (E/V)87.57%

Debt Weight (D/V)12.43%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (87.57% × 10.97%) + (12.43% × 3.13%)

= 10.00%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$4.7B	$6.7B	$7.5B	$8.0B	$9.0B
EBIT	$1.1B	$1.5B	$1.7B	$1.9B	$2.2B
Tax	$321M	$464M	$523M	$577M	$658M
NOPAT	$749M	$1.1B	$1.2B	$1.3B	$1.5B
+ Depreciation	$1.0B	$1.5B	$1.7B	$1.8B	$2.0B
- Capex	$288M	$414M	$455M	$487M	$538M
- Δ NWC	$40M	$156M	$41M	$44M	$49M
Free Cash Flow	$1.5B	$2.0B	$2.4B	$2.6B	$3.0B
Discount Factor	0.909	0.751	0.621	0.513	0.386
Present Value	$1.3B	$1.5B	$1.5B	$1.3B	$1.1B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.0B

Terminal Growth Rate3.75%

WACC10.00%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$49.1B

PV of Terminal Value$18.9B

Exit Multiple Method

Year 10 EBITDA$4.2B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$117.6B

PV of Terminal Value$45.4B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$13.6B

PV of Terminal Value$18.9B

Enterprise Value$32.6B

(-) Net Debt$4.9B

Equity Value$27.7B

Shares Outstanding537M

Price per Share$51.52

Exit Multiple Method

PV of Projected FCFs$13.6B

PV of Terminal Value$45.4B

Enterprise Value$59.0B

(-) Net Debt$4.9B

Equity Value$54.1B

Shares Outstanding537M

Price per Share$100.72

Pure Model Fair Value

$76.12

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
8.00%	$94.60	$97.37	$100.78	$105.10	$110.76
9.00%	$82.93	$84.69	$86.79	$89.34	$92.48
10.00%	$73.54	$74.73	$76.12	$77.74	$79.68
11.00%	$65.74	$66.58	$67.54	$68.64	$69.91
12.00%	$59.09	$59.71	$60.39	$61.17	$62.05

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$53.58

-27.9% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 1.80

Base Case

$76.12

2.4% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 1.44

Bull Case

$102.89

38.5% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 1.22

Key Assumptions & Drivers• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.97%

Year 3 Revenue Growth18.18%

Year 5 Revenue Growth3.75%

Year 7 Revenue Growth3.75%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin22.94%

Terminal EBIT Margin25.00%

Tax Rate30.00%

Historical Capex / Rev6.18%

Terminal Capex / Rev6.00%

NWC / Revenue15.05%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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