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Monolithic Power Systems Faces Slump Despite Analysts’ Optimism

Key Takeaways

Shares of Monolithic Power Systems have declined by over 30% following its last earnings report at the end of October. Concerns over the company’s fourth-quarter outlook and a potential drop in sales to Nvidia have contributed to a sharp decline in stock value. Nevertheless, analysts maintain a positive outlook, pointing to a growing market for AI-related customers that could enhance revenues in the future.

After achieving record highs last year, shares of Monolithic Power Systems (MPWR) have experienced a significant downturn, falling more than 30% since its earnings report disclosed in late October. Despite this slump, analysts have remained optimistic about the stock’s potential.

In a recent note, analysts from Deutsche Bank have included Monolithic in their “top picks” list, referring to its recent decline as a “buying opportunity.” They have reiterated a “buy” rating along with a price target of $900, emphasizing anticipated revenue growth and improving margins as major positive factors in the coming years.

Modest Q4 Projections and Nvidia Sales Impact

Monolithic Power Systems exceeded earnings expectations in the third quarter; however, its projection that revenue growth would be “essentially flat” for the fourth quarter startled investors, leading to a 17% drop in shares in a single day.

The company’s stock faced additional pressure in November when it was reported that Nvidia (NVDA) might cut back on the quantity of components it procures from Monolithic for its Blackwell platform. Previously, analysts had identified Blackwell as a significant positive influence on Monolithic’s stock performance.

Opportunities in the Expanding AI Market

According to analysts from Deutsche Bank, even if Monolithic experiences a reduction in share among Nvidia’s suppliers, the company is expected to maintain “solid AI-related growth,” given the expanding market of potential clients.

Although the current valuation of the company is noted as being “at the high end of our comfort range,” the analysts argue that this is justifiable due to Monolithic’s reliable performance, above-average growth, diverse growth opportunities, and the potential for sustainable margin expansion.

Currently, 10 out of 11 analysts monitored by Visible Alpha have classified the hardware manufacturer’s stock as a “buy,” with one holding a “hold” rating. The collective average price target stands at $822.91, which is over 30% higher than Friday’s closing price of $625.82, indicating analysts’ belief that the stock will recover much of its recent losses by the time the next earnings report is released.

Monolithic Power Systems is set to disclose its fourth-quarter earnings report on February 6, a date that many investors are watching closely.

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