On Thursday, Rosenblatt Securities adjusted its stance on Monolithic Power Systems (NASDAQ:MPWR), downgrading the stock from Buy to Neutral while maintaining a price target of $880. The firm's analysis followed the company's recent earnings report, which presented a combination of a slight revenue beat and marginally weaker gross margins.
Monolithic Power Systems, known for its power solutions in high-performance computing and other markets, experienced a pause in its Enterprise Data segment, particularly affecting AI Nvidia-driven products in the fourth quarter of 2024. This slowdown is attributed to the delayed ramp-up of Nvidia (NASDAQ:NVDA)'s Blackwell platform. Despite this, broader end-market trends have shown considerable recovery.
The analyst expressed concerns over Monolithic Power's future market position. The company currently holds a significant share of Nvidia's Hopper and early Blackwell power module verticals. However, it is expected to face increased competition from Renesas and Infineon (OTC:IFNNY) starting in 2025.
Looking further ahead, the Nvidia roadmap suggests that Texas Instruments (NASDAQ:TXN) and possibly Analog Devices (NASDAQ:ADI) could be involved in the power delivery for the Rubin cycle in 2026.
Monolithic Power's stock performance has been strong over the last quarter, but the analyst believes that a reset in product momentum and valuation may be imminent. Citing these factors, the downgrade to Neutral is seen as a cautious move.
In support of the $880 price target, Rosenblatt is applying a 40x price-to-earnings multiple to its projected fiscal year 2026 earnings per share of $22. The firm's decision to maintain the price target reflects a balance between the recent positive performance and the anticipated challenges ahead.
In other recent news, Monolithic Power Systems, Inc. (MPS) reported robust growth in its third-quarter earnings call for 2024, with record revenue of $620.1 million. This represents a 22% increase from the previous quarter and a 30% year-over-year increase. The revenue growth was primarily driven by significant gains in the automotive, communication, and storage and compute segments.
MPS anticipates sustainable growth in the communications segment through the first half of 2025 and is focusing on new AI accelerator platforms and home automation markets. However, MPS also reported a slight decline of 1.5% in enterprise data revenue, attributed to customer ordering patterns and supply chain security needs.
The company revealed it has at least one customer that accounts for over 10% of revenue, with more details to be disclosed in the upcoming 10-Q filing. Despite decreased internal inventory levels and low channel inventory not aligning with high market demand, MPS executives reaffirmed their commitment to design engagement and product quality to drive future revenue growth.
These are some of the recent developments concerning Monolithic Power Systems, Inc.
InvestingPro Insights
Monolithic Power Systems' recent performance and future outlook can be further illuminated by data from InvestingPro. The company's market capitalization stands at an impressive $44.84 billion, reflecting its significant presence in the power solutions market. Despite Rosenblatt's downgrade, MPWR's stock is trading near its 52-week high, with a price that is 95.85% of its peak, indicating strong investor confidence.
InvestingPro Tips highlight that MPWR has raised its dividend for 6 consecutive years and maintained payments for 11 years, showcasing financial stability. This is particularly noteworthy given the company's high earnings multiple and the analyst's concerns about future market position. The company's revenue growth of 15.03% in the most recent quarter also suggests ongoing demand for its products, despite the anticipated slowdown in the Enterprise Data segment.
However, investors should note that MPWR is trading at high valuation multiples across various metrics, including P/E, EBIT, EBITDA, and revenue. This aligns with Rosenblatt's view that a valuation reset may be on the horizon. For a more comprehensive analysis, InvestingPro offers 16 additional tips that could provide deeper insights into MPWR's financial health and market position.
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