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In a medium heatproof bowl, microwave chips, peanut butter, and butter on high 1 minute. Stir with a wooden spoon to combine. Continue to microwave in 20-second increments, stirring between each, until melted and smooth. Add vanilla and salt and stir until smooth.
Pour cereal into a large bowl, then pour chocolate mixture over cereal. Gently toss with wooden spoon until cereal is coated.
Transfer chocolate-coated cereal to a large resealable plastic bag, then add confectioners' sugar and shake to coat. Pour puppy chow onto a large baking sheet and let cool 10 minutes.