We came across a bullish thesis on Monolithic Power Systems, Inc. (MPWR) on Long-Term Pick’s Substack by Dan. In this article, we will summarize the bulls’ thesis on MPWR. Monolithic Power Systems, Inc. (MPWR)’s share was trading at $689.42 as of Jan 22nd. MPWR’s trailing and forward P/E were 77.72 and 39.68 respectively according to Yahoo Finance.
An automated manufacturing production line of semiconductor components on an assembly line.
Monolithic Power Systems (MPS) is a leading semiconductor company specializing in power-efficient solutions across a wide range of industries, including data centers, automotive, industrial automation, and consumer electronics. Founded in 1997, the company is known for its innovative analog and mixed-signal integrated circuits, which are essential for technological transitions in key sectors such as electric vehicles, 5G infrastructure, and AI-powered data centers. With a strong focus on design and innovation, MPS operates as a fabless company, outsourcing its manufacturing while maintaining high flexibility and reducing fixed costs. This business model allows MPS to leverage its proprietary process technologies to enhance efficiency and deliver high returns on invested capital (ROIC).
MPS is strategically positioned to benefit from the rapid growth in high-tech sectors, with the automotive and data center markets being primary drivers of its long-term growth. The automotive segment is experiencing an expansion due to the increasing adoption of electric vehicles and advanced driver-assist systems, while the data center segment is benefiting from the rising demand for AI workloads and cloud computing technologies. These sectors are expected to fuel MPS’s growth, with the company projected to achieve a compound annual growth rate (CAGR) of at least 20% through 2030. MPS is expected to see its earnings per share (EPS) grow at a rate of 20.6% annually, with sales projected to increase by 18.8% through fiscal 2026.
Despite its strong growth potential, MPS recently faced challenges, including a loss of market share related to Nvidia’s Blackwell GPU platform. Performance issues with its voltage regulator modules (VRMs) led to reduced allocations and canceled orders, causing the stock to drop nearly 20%. However, the company’s leadership remains confident in the future of MPS, particularly in the AI-driven server market, which is expected to stabilize and grow in the coming years.
MPS’s competitive edge is anchored in its proprietary BCD technology, which integrates analog, digital, and memory components into a single chip, delivering higher power density and greater efficiency than competitors. The company’s fabless model further enhances its cost structure, making it a key player in its industry. MPS’s diverse customer base includes major companies in computing, automotive, and cloud computing, reinforcing its integral role in global supply chains.
MPS is well-positioned for continued growth with a strong balance sheet, including $1.46 billion in cash and no debt. However, risks remain, including potential geopolitical concerns and the cyclical nature of the semiconductor industry. Despite these risks, MPS is widely viewed as undervalued, with a discounted cash flow analysis estimating the fair value of the stock to be $715.78, suggesting a 12.6% upside. This makes MPS an attractive investment for those seeking exposure to high-growth sectors such as electric vehicles and AI-driven data centers.
Monolithic Power Systems, Inc. (MPWR) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held MPWR at the end of the third quarter which was 35 in the previous quarter. While we acknowledge the risk and potential of MPWR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MPWR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.