Microchip's CEO called data center a bubble. Texas Instruments owns the capacity he cannot rent.

Microchip Technology▼−9.92% — Microchip Technology, down 9.92 percent today, a maker of analog and microcontroller chips sold into factories and cars, beat Wall Street on its September quarter and still lost 10% on November 6↗, closing at $58.35 ¹. The trigger was the December guide: sales of $1.573–1.638 billion↗, about 1% below the $1.63 billion analysts expected ¹². On the call, chief executive Steve Sanghi went further: "data center is in a bubble and the second derivative of growth must come down substantially" ¹².

The bubble is his own best customer

The quote is strange arithmetic. Data center is 16.7% of Microchip's own sales, more than $250 million last quarter and up 55.7% from a year earlier ¹. And the guide's real cause was supply, not demand. Lead times at the foundries and assembly houses Microchip rents have stretched to 32 weeks, high-margin product cannot ship until the March quarter, book-to-bill is above 1 and the March backlog is bigger than December's ¹. The orders exist. The capacity does not.

The split screen of one week

Texas Instruments▼−0.23% — Texas Instruments, down 0.23 percent today sells to the same factories and car makers, and it guided December roughly flat at about $6.05 billion, within a $5.80–6.30 billion range ²³. NXP▲+1.58% — NXP, up 1.58 percent today guided up 2% ². On November 6 Microchip fell 10% and Texas Instruments fell 0.28% ². Microchip was already down 43% from its May high ¹.

The owned fabs are printing again

Texas Instruments' third quarter was its best in years: revenue of $6.055 billion against $4.742 billion a year earlier↗, up 28%, net income of $2.425 billion, EPS of $2.62 ¹³. Trailing free cash flow reached $8.422 billion, against $2.415 billion a year ago ³⁷.

The cash matters because of what it just paid for. TI lifted its dividend 7% to $1.52 a share in September↗, the 23rd straight annual increase, after the fab build pushed dividends to 338% of free cash flow in fiscal 2023 and 192% in fiscal 2025; the payout now takes 71% ⁴. Cash from operations rose 43% year over year to $9.9 billion ⁴. TI also priced $2.0 billion of senior unsecured notes to help fund the planned Silicon Laboratories acquisition ⁵.

The counterpoint

TI is not standing outside Sanghi's bubble. Its own data-center revenue grew about 95% year over year to about 13% of sales ⁶, and its trailing free cash flow includes $1.6 billion of CHIPS Act incentives ⁶. If the second derivative does come down, TI compresses with everyone else, and the market is already paying for the recovery: TI closed at $311.49 while Simply Wall St's own DCF puts fair value at $183.88↗ ⁵. The owned-capacity reading also leans on Microchip converting its backlog into shipped revenue in March ¹.

What to watch

TI reports again in late January, and its February capital-management call is the first since dividend coverage healed ⁴. Capex lands at the higher end of $2–3 billion this year, and management plans to modulate 2027 tool installations on revenue growth and free cash flow per share ⁶. That call is the fork: spend the recovered cash on more capacity, or return it. The bubble rents its fabs. February shows what the landlord does next.

Earlier in this coverage: Texas Instruments' $5.8 billion payout needed $1.2 billion of CHIPS Act cash (October 7) and Silicon Labs'▲+0.07% — Silicon Labs, up 0.07 percent today $9.06 spread to Texas Instruments hinges on Beijing (October 8).