Shares of Monolithic Power Systems (MPWR +0.39%) rallied hard today, up 5% as of 3:15 p.m. ET
Monolithic was beaten down in November on fears of market share losses in its high-growth artificial intelligence (AI) segment. However, with shares down 35% from their recent highs, Monolithic found one more defender on Wall Street today.
NASDAQ: MPWR
Key Data Points
Citi initiates with a buy
Today, Citigroup initiated coverage on Monolithic with a buy rating, giving the stock a $700 price target. That's 17.6% higher than Monolithic's $595 share price at the end of close yesterday.
Monolithic makes highly sophisticated power control chips that go into a range of technology applications. The power and heat burdens on artificial intelligence chips has grown in recent years, making the AI segment the biggest growth driver for Monolithic over the past couple of years.
But Monolithic's stock crashed back in November when Edgewater Research wrote it believed Monolithic had lost market share in the all-important Nvidia Blackwell AI server power module, due to performance issues at higher power levels. Edgewater noted the problem appeared to occur at higher-watt levels required of the B200 and GB200 modules, but that Monolithic could maintain share at the lower-power B300A module.
But today, Citi apparently thinks that potential risk is already accounted for in the share price drop. The Citi team also believes Monolithic can still maintain 20% revenue growth going forward, as it has on average for the past decade, in spite of the potential market share losses on certain specific AI products.
While the company's enterprise data segment, which contains Nvidia-based revenue, recently became the largest and fastest-growing segment, it only made up just under 30% of revenues last quarter. And the specific enterprise data products on which Monolithic may lose share likely made up much less than that number. Therefore, the analysts think Monolithic can grow along with the power-intensive AI and auto markets going forward, in spite of potential share losses on certain products if they even happen.
Monolithic defends itself
It should be noted that after the Edgewater note, Monolithic issued a press release saying it had no performance issues with its products, and that it was still in Nvidia's next-generation systems.
Of course, Monolithic Power could lose market share in Blackwell modules for other reasons, such as the desire for Nvidia to diversify its sources of power controllers. Still, with the need for power solutions increasing across a variety of applications, Monolithic's revenue and profits should still grow in the years ahead.
That being said, at 37.5 times next year's earnings estimates, solid growth is already baked into the share price. The question is how much Monolithic can outperform those high expectations, even if they are lower than a month ago.
