The shares of Monolithic Power Systems (MPWR 5.03%) experienced a significant surge today, climbing 5% as of 3:15 p.m. ET. This uptick reflects a strong market response, reversing some of the recent downturns the company faced.
Monolithic faced considerable pressure in November due to concerns over potential market share losses within its rapidly expanding artificial intelligence (AI) segment. However, after a notable drop of 35% from its recent peaks, it appears that Wall Street is rallying behind Monolithic once more, indicating renewed investor confidence.
Citi’s Buy Rating Sparks Investor Optimism for Monolithic Power Systems
In a promising development, Citigroup has kicked off its coverage of Monolithic with a buy rating, assigning a price target of $700 per share. This target indicates a potential upside of 17.6% from Monolithic’s closing price of $595 yesterday, suggesting analysts foresee positive momentum for the stock.
Monolithic specializes in the production of advanced power control chips that are integral to various technological applications. The demands on power and thermal management for AI chips have surged in recent years, positioning the AI segment as a crucial growth engine for Monolithic. The company has successfully leveraged this trend, which has significantly contributed to its financial performance over the last couple of years.
Despite this potential, Monolithic’s stock took a hit in November following commentary from Edgewater Research, which suggested that Monolithic might have lost market share in the vital Nvidia Blackwell AI server power module due to performance challenges at elevated power levels. Edgewater highlighted that this issue primarily affected the higher-wattage B200 and GB200 modules, while Monolithic was believed to maintain its market presence with the lower-power B300A module.
However, Citi analysts seem to believe that the risks associated with these market share losses are already reflected in the current share price decline. They are optimistic about Monolithic’s ability to sustain a 20% revenue growth trajectory moving forward, consistent with the company’s performance over the past decade, despite potential setbacks in specific AI product lines.
While the enterprise data sector, which includes revenue derived from Nvidia, has recently emerged as the largest and fastest-growing segment for Monolithic, it accounted for just under 30% of total revenues last quarter. Moreover, the specific enterprise data products facing potential share loss likely represented an even smaller portion of this revenue. This leads analysts to conclude that Monolithic is well-positioned to thrive in the power-intensive AI and automotive markets in the future, regardless of any possible share losses.
Monolithic Power Systems Addresses Market Concerns and Reaffirms Product Integrity
Following the commentary from Edgewater, Monolithic proactively released a statement asserting that it has encountered no performance issues with its products and confirmed its continued involvement in Nvidia’s next-generation systems. This move demonstrates the company’s commitment to transparency and reassures investors about its product reliability.
Nonetheless, it’s important to consider that Monolithic Power could experience market share erosion in Blackwell modules for various reasons, including Nvidia’s strategic aim to diversify its sources of power controllers. However, given the escalating demand for innovative power solutions across multiple applications, Monolithic’s revenue and profit growth prospects remain robust for the foreseeable future.
That being said, with a valuation of 37.5 times next year’s earnings projections, much of the anticipated growth is already factored into the stock price. The key question now is how effectively Monolithic can exceed these elevated expectations, particularly in light of the recent downward revisions.
Citigroup is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
