Shares of Microchip Technology Inc fell 2.8% on Wednesday after J Capital Research published a critical assessment of the semiconductor company, calling into question how sustainable Microchip’s recent momentum tied to AI and data center demand may be.
In its report, J Capital said Microchip’s Data Center and Compute revenue has fallen over the past four years, even as the broader market for data center capital expenditures expanded. The short seller acknowledged that Microchip’s data center-specific segment is growing, but noted it makes up roughly 7% of the company’s total revenue.
J Capital drew attention to Microchip’s capital spending patterns, saying the company’s capital expenditures are running below depreciation and that Microchip ranks lowest among nine competitors in terms of capex as a proportion of depreciation. The report asked whether the company can meaningfully scale its Data Center Solutions Business Unit without changing its cost structure, and observed there is no clear evidence Microchip is gearing up for rapid growth in that area.
The report put Microchip’s data center sales at $302.7 million and contrasted that figure with larger peers. J Capital cited Marvell and Broadcom as examples, saying Marvell reported $4 billion in data center sales in 2025 with 88% growth and Broadcom reported $20 billion with 65% growth. By comparison, Microchip’s data center revenue is substantially smaller. While Microchip projects 67% growth in its data center business for the current year, J Capital expressed skepticism about whether such expansion can be sustained.
J Capital also noted that Microchip has lost customers over the past two years with no assurance those customers will return. The short seller said the company’s valuation looks rich relative to its non-data-center growth profile, despite the company’s share price having climbed about 46% since the start of the year.
Company executives have described data centers as part of a broader "megatrend" segment, and have said Microchip’s products serve the "bleeding edge" of AI technology. J Capital’s report challenges whether the company’s underlying revenue mix, capital spending and customer dynamics support the high expectations baked into the stock price.
Summary
J Capital Research issued a cautious report on Microchip, highlighting multi-year declines in Data Center and Compute revenue, limited size of the data center business relative to total sales, capex below depreciation and the loss of customers over recent years. The short seller questioned the sustainability of projected data center growth and suggested the stock’s valuation may not be justified by the company’s broader growth profile.
- Key points
- Microchip shares fell 2.8% following J Capital’s report.
- Data Center and Compute revenue has declined over the past four years despite broader data center capex expansion.
- Microchip’s data center segment represents about 7% of total business and generated $302.7 million in sales.
- Microchip expects 67% growth in its data center business this year, but J Capital doubts the durability of that growth.
- Sectors impacted
- Semiconductor industry
- Data center equipment and infrastructure
- Equity markets, particularly chip stocks exposed to AI narratives
- Risks and uncertainties
- Capital expenditure shortfall - Microchip’s capex reportedly runs below depreciation, raising questions about its capacity to scale data center operations; this affects the semiconductor and data center hardware sectors.
- Customer attrition - The company has lost customers over the past two years with no guarantee of their return, creating revenue risk for related product lines.
- Concentration and sustainability - The data center segment is only about 7% of total business, and J Capital is skeptical that projected rapid growth can be sustained, which could influence investor sentiment in technology and chip equities.
Overall, the report from J Capital places emphasis on structural and execution risks tied to Microchip’s ability to convert a small but fast-growing data center business into a material and durable contributor to revenue, without pointing to clear signs of substantially increased capital investment or customer recovery.