Shares of Kirkland Washington based chipmaker, Monolithic Power Systems, are getting very tempting again. We dumped 100% of our shares back in August in the $800’s, and they now trade below $600. The company’s diverse end-market strategy is expected to produce ~+20% revenue growth this year and next, while producing above 20% net margins and trading at only 1.7x forward PEG ratio (price-to-earnings / growth) and with a 5-year expected EPS growth rate estimate of 25%… impressive!
MPWR shares fell hard following a mixed October 31 quarterly earnings report. According to an investor note from Rosenblatt analyst Hans Mosesmann:
"MPS drove a decent beat and mixed outlook, with revenues a tad higher and GMs a bit weaker…"
"Broader end-market trends have recovered nicely; however, Enterprise Data (AI Nvidia-driven) took a pause for Q424, Rosenblatt thinks, on the delayed Blackwell ramp."
"The issue for investors to fix on is the rather precarious position of having most of the Nvidia Hopper and early Blackwell power module vertical/lateral share and then sharing the socket with two other players, likely Renesas and Infineon, in 2025,"
Mega Trends
As we wrote last year, MPWR continues to benefit from two massive secular trends: (1) expanding automotive applications (cars need chips to do everything these days) and (2) the cloud/AI (artificial intelligence). These mega trends remain intact, and position MPWR for a bright future.
Diversified Market Strategy
MPW did achieve record revenue in the latest quarter, a result of its diversified market strategy.
According to founder and CEO, Michael Hsing (in the latest quarterly press release):
“Our results continue to demonstrate the success of our proven, long-term growth strategy and our transformation from being only a chip supplier to a full solutions provider.”
The Bottom Line
Given the company’s (1) high-growth revenue trajectory (courtesy of ongoing semiconductor/chip demand), (2) its diversified and market-leading strategy, and (3) compelling valuation, Monolithic Power shares are again worth considering. The industry is highly cyclical and volatile, but (4) we’re likely closer to the bottom than the top of a cycle, and (5) if you wait long enough—we believe these shares are eventually going dramatically higher.
*No position at this time, but MPWR is high on our watchlist.