We recently compiled a list of the 35 Chip Stocks Powering AI Boom. In this article, we are going to take a look at where Monolithic Power Systems, Inc. (NASDAQ:MPWR) stands against the other AI stocks.
AI has played a pivotal role in driving growth within the semiconductor market, transforming it into one of the most lucrative sectors globally. As AI applications proliferate across industries — from cloud computing and autonomous vehicles to healthcare — demand for advanced semiconductor technologies has surged. NVIDIA, a leader in AI GPUs, reported record revenues exceeding $30 billion in Q2 2024, largely driven by AI-related chip sales. Jensen Huang, the CEO of the chipmaker, remarked that AI was the most powerful technology force of the time and was transforming industries across the board.
AI demands massive data processing capabilities, which in turn requires highly specialized semiconductors like GPUs, TPUs, and AI accelerators. Experts highlight that 75% of AI workloads rely on advanced chips designed specifically for machine learning and deep learning tasks. Research firm Gartner predicts that 70% of all new AI applications by 2025 will require hardware accelerators, primarily in data centers and edge computing environments, underscoring the critical role of AI in the semiconductor ecosystem. As AI models become more complex, they require exponentially larger memory and storage solutions.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and AI News You Should Not Have Missed.
AI models like GPT-4 by OpenAI and PaLM by Google have billions of parameters, and memory-intensive High Bandwidth Memory (HBM) chips are crucial for training and inference. This has led to a significant increase in the production of memory chips, with AI-related demand accounting for a large portion of the $500 billion semiconductor industry. AI-focused startups and established companies alike are benefiting from this growth. For instance, the AMD acquisition of Xilinx in 2022 was aimed at enhancing AI capabilities, resulting in a major competitive advantage in AI chips.
However, the rosy picture has been dented in recent weeks on the back of a major selloff in the tech sector and increased volatility in the semiconductor space. Robert Maire, the chief of Semiconductor Advisors, a prominent financial consulting firm, recently appeared on news platform CNBC to discuss the market volatility in the chip sector, highlighting factors like earnings not being enough to keep stocks at inflated values and the threat of possible Chinese oversupply in trailing edge semiconductors. Maire said that AI has been the only driver of growth in the semi market, leading to a situation where investors got ahead of themselves.
Maire highlighted during his appearance that China was still lagging behind the US and Europe in the leading-edge AI space, as it had been deprived of tools needed to keep pace with change in this market. However, the chip advisor claimed that Chinese firms have caught up in the trailing edge AI space, citing examples of Chinese firms like Semiconductor Manufacturing International Corporation and Hua Hong Semiconductor Limited already exceeding US-based firms like UMC and GlobalFoundries in capability. He cautioned that despite progress, Chinese firms were still not doing enough to challenge US-based leaders in the trailing edge space.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
Our Methodology
For this article, we selected companies that operate in the semiconductor sector and have exposure to the AI industry. These stocks are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician in a lab coat soldering chipsets to power the company’s infotainment head units.
Monolithic Power Systems, Inc. (NASDAQ:MPWR)
Number of Hedge Fund Holders: 35
Monolithic Power Systems, Inc. (NASDAQ:MPWR) engages in the design, development, marketing, and sale of semiconductor-based power electronics solutions for the computing and storage, automotive, industrial, communications, and consumer markets. The firm is heavily exposed to AI verticals. In the latest earnings report, the firm posted 16% quarter-over-quarter increase in data-related sales. In the previous two quarters, this figure was 30% and 106%, respectively. Year-over-year, the jump in sales was 217% in the first quarter of 2024, representing 33% of total sales. These numbers offset slowing demand from other sectors like consumer, industrial, and automotive.
Monolithic Power Systems, Inc. (NASDAQ:MPWR) has earned bullish reviews from top market experts. Raymond James recently raised the price target on the stock to $925 from $770 and kept an Outperform rating, noting that enterprise data again led the strong upside in the quarter, largely driven by continued momentum in the GPU ecosystem, and Monolithic Power maintained a leadership position in the fastest growing applications for AI datacenter power, with incremental drivers coming as other end markets began to inflect higher.
Overall MPWR ranks 26th on our list of the 35 chip stocks powering the AI boom. While we acknowledge the potential of Monolithic Power Systems, Inc. (NASDAQ: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 Monolithic Power Systems, Inc. (NASDAQ:MPWR) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
