Monolithic power systems NASDAQ: MPWR is a chip company that isn’t talked about as much as some other companies in the industry, such as NVIDIA. NASDAQ: NVDA or Taiwan Semiconductor Manufacturing New York Stock Exchange: TSM. But that doesn’t mean the company hasn’t had a lot of success over the years. It has managed to accumulate a sum of almost $28 billion, and over the past few weeks, that figure is looking much smaller. Since October 29, the company has lost more than 39% of its value.
However, regardless of what the market says, it’s fair to wonder whether such a massive drop is worth it. Has the company’s intrinsic value really dropped $18 billion in just two weeks, or is the market overreacting to the latest news?
Monolithic power systems today
Monolithic power systems
(As of 11/29/2024 8:53 PM ET)
- 52 week range
- $542.73
▼
$959.64
- Dividend yield
- 0.88%
- P/E ratio
- 64.00
- Target price
- $840.36
Monolithic chips power the industry
First, it’s important to understand what Monolithic does. Monolithic designs of power microcircuits. These chips regulate the energy use of other chips, such as NVIDIA’s artificial intelligence accelerator. This ensures that the chip has the right amount of power in the right places and at the right time so that it can operate correctly and efficiently.
Because Monolithic chips regulate the power of other chips, they are needed throughout the semiconductor industry. This becomes obvious if you look at the company’s financial performance. It generates significant revenues from enterprise data, storage, automotive, consumer and industrial semiconductor applications.
Two pieces of bad news tank are monolithic, but Wall Street looks optimistic
The company’s third-quarter earnings report on October 30 certainly caused concern in the market. The company’s shares fell sharply on the back of earnings. They beat expectations on revenue and adjusted earnings per share (EPS). However, the company failed to raise its forecast above expectations, which was the reason for the decline.
There was even more bad news surrounding Monolithic. A report from Edgewater Research suggests that Monolithic may lose orders for the latest NVIDIA Blackwell chips. He cited technical performance issues as the reason. This caused the stock to fall even more than the earnings report. However, Needham and Oppenheimer did not change their price targets based on this.
In conversations with Needham, Monolithic denied the report. The company said it was not aware of these technical issues and had not received any order cancellations from NVIDIA. The company went further in another report. It said that because Blackwell’s production was at an advanced stage, notice of these changes would be required in the supply agreement. It did not receive such notification.
Wall Street’s target change didn’t even come close to lowering the stock price. TD Cowen, Needham and Truist target changes have fallen an average of just 9% since Oct. 30. When adding the price targets of three more analysts who either initiated the stock or did not change their target, the average price target is $875. Given Friday afternoon’s share price of $566, this suggests a 55% upside potential for the stock. At first glance, it’s hard to believe that Monolithic Power Systems went on sale for a reason.
As other parts of the business recover, a monolithic solution may prove to be cheap
Monolithic Energy Systems Stock Forecast Today
$840.36
Growth potential 48.05%Moderate purchase
Based on ratings from 11 analysts
| High forecast | US$1100.00 |
|---|---|
| Average forecast | $840.36 |
| Low forecast | $600.00 |
Details of the reserve forecast for monolithic power systems
Another worrying development is that the company’s enterprise data revenues were down slightly from the previous quarter. This is not great to see since this is the part of the company’s business that drives growth. However, enterprise data revenues were still up 86% year-over-year. All other business segments have experienced negative annual growth for at least the last three quarters.
However, in the third quarter, all other segments returned to year-over-year growth and increased revenue compared to the previous quarter. This signals that data growth in other areas of the business is slowing down and starting to accelerate. This is important because although enterprise data revenue has grown exponentially, it only accounts for 30% of total revenue.
Overall, I view the sharp decline in Monolithic Power shares as an opportunity. The analyst’s reaction to the price target and the company’s statements throw cold water on Edgewater’s claims. In addition, the diversification of the company’s business makes risks in the enterprise data segment less alarming. That doesn’t mean the stock can’t continue to fall, but it’s still a strong business with products in demand across all segments of the chip market. It seems to me that the shares have gone to a discount.
Before you consider monolithic power systems, you need to hear this.
MarketBeat tracks Wall Street’s top-rated and best-performing analysts daily and the stocks they recommend to their clients. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now, before the broader market takes hold… and Monolithic Power Systems wasn’t on the list.
While Monolithic Power Systems currently has a Moderate Buy rating among analysts, the top-rated analysts think these five stocks are Strong Buys.
View five stocks here
Looking to roll over your 401K or Roth IRA? Use these time-tested investment strategies to increase the monthly retirement income your stock portfolio generates.
Get this free report