On Monday (NASDAQ:MNDY), Deutsche Bank (ETR:DBKGn) maintained its Buy rating and $900.00 stock price target for Monolithic Power Systems (NASDAQ:MPWR), despite concerns over potential market share losses.
The firm addressed rumors that MPWR might lose a significant portion of its business providing power management solutions for NVIDIA (NASDAQ:NVDA)'s latest AI processors, dubbed Blackwell. The speculation suggested that performance issues at higher power levels could be the cause.
The firm's analyst highlighted that their projections already accounted for a decrease in MPWR's market share for the Blackwell generation in CY25/26, with competitors Renesas and Infineon (OTC:IFNNY) likely gaining initially.
The analyst also expressed skepticism about MPWR losing its entire NVIDIA business, considering the advantages of being an incumbent supplier and the low probability of severe performance issues, especially since revenue from NVIDIA for MPWR has increased year to date.
In the event that MPWR does lose all of its NVIDIA-related business, this could place approximately 15% of the company's revenues at risk, as reported in their third-quarter 2024 10-Q filing.
Without any mitigating actions, such a loss could result in nearly a 20% reduction in the firm's projected CY25E pro forma EPS and about a 10% reduction in CY26E pro forma EPS. Under this scenario, MPWR's shares would trade at a P/E ratio of approximately 32 times, which is slightly below its typical average of around 40 times before the AI boom.
Deutsche Bank concluded that, although they are continuing to investigate the potential impact and credibility of the market share loss, they believe that the current share price of MPWR may already reflect the worst-case scenario. The firm reiterated its Buy rating on the stock.
Earlier in the day, shares of Monolithic Power Systems traded off the low of the day, down 21%. The selloff was attributed to comments made by Edgewater Research, which sparked the initial concerns over MPWR's market share in supplying NVIDIA.
In other recent news, Monolithic Power Systems reported a record revenue of $620.1 million in its third-quarter earnings call for 2024, marking a 30% year-over-year increase. This robust growth was primarily driven by significant gains in the automotive, communication, and storage and compute segments. However, a slight 1.5% decline in enterprise data revenue was noted, attributed to customer ordering patterns and supply chain security needs.
Investment firms TD Cowen, Needham, and Rosenblatt Securities have recently adjusted their positions on Monolithic Power. TD Cowen reduced its price target to $975 from $1,100 while maintaining a 'Buy' rating. Needham also reduced its price target to $950 from $1,000, keeping a 'Buy' rating. Rosenblatt, on the other hand, downgraded the stock from 'Buy' to 'Neutral', maintaining a price target of $880.
These adjustments were influenced by the company's recent financial results and considerations about its future market position. Despite increased competition, Monolithic Power Systems remains focused on driving future revenue growth through design engagement and product quality. Sustainable growth is anticipated in the communications segment through the first half of 2025.
These are among the recent developments concerning Monolithic Power Systems.
InvestingPro Insights
Despite the market's recent concerns about Monolithic Power Systems' (NASDAQ:MPWR) potential loss of NVIDIA business, InvestingPro data reveals some positive aspects of the company's financial health. MPWR's revenue growth of 11.62% over the last twelve months and a strong 30.59% quarterly revenue growth in Q3 2024 suggest the company's overall business remains robust. This growth may help offset potential losses if the NVIDIA concerns materialize.
InvestingPro Tips highlight that MPWR "holds more cash than debt on its balance sheet" and "liquid assets exceed short term obligations," indicating a solid financial position that could help the company navigate potential challenges. Additionally, the company "has raised its dividend for 6 consecutive years," demonstrating a commitment to shareholder returns even in uncertain times.
It's worth noting that while the stock has "fared poorly over the last month" with a -18.88% return, it has shown a "high return over the last year" of 51.84%, suggesting longer-term investor confidence. These insights, along with 13 additional tips available on InvestingPro, provide a more comprehensive view of MPWR's financial situation beyond the current market concerns.
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