In This Article:
Daniel Ceng / Anadolu via Getty Images
Key Takeaways
-
Shares of Monolithic Power Systems are down over 30% since its last earnings report at the end of October.
-
The company's fourth-quarter outlook and reports that its sales to Nvidia could decline sent shares sharply lower in the last months of the year.
-
Analysts have stayed bullish, citing the expanding market of potential AI-related customers as a boost to revenue in the coming years.
After reaching record highs last year, shares of Monolithic Power Systems (MPWR) have slumped more than 30% since the semiconductor firm's last earnings report at the end of October, but analysts have remained bullish on the stock.
In a note earlier this week, Deutsche Bank analysts added Monolithic's stock to its list of "top picks," and called its recent slide a "buying opportunity." The analysts reiterated their "buy" rating and a $900 price target, citing likely revenue growth and improving margins over the next two years as positive catalysts.
Modest Q4 Projections, Potential Reduction to Nvidia Sales Drove Shares Lower
Monolithic beat earnings estimates in the third quarter, but the company's forecast that revenue growth would be "roughly flat" in the fourth quarter shook investors and its stock plunged 17% in a day.
Shares took another hit in November when a report suggested Nvidia (NVDA) was considering reducing the amount of components it buys from Monolithic for its Blackwell platform. Analysts had previously cited Blackwell as a positive catalyst for Monolithic stock.
Expanding AI Market, 'Diversity of Growth Drivers' Could Help Monolithic
Deutsche Bank analysts wrote that even if Monolithic loses share among Nvidia's suppliers, the company should "continue to deliver solid AI-related growth" as the market of potential customers continues to expand.
While the company's valuation is "at the high end of our comfort range," the analysts said it's justified because of Monolithic's "consistent execution, above-industry growth, diversity of growth drivers, and sustainable margin-expansion potential."
Ten of the 11 analysts tracked by Visible Alpha rate the hardware maker's stock as a "buy" along with one "hold" rating. The average price target of $822.91 is more than 30% above Friday's closing price of $625.82, suggesting analysts think the stock will make up most of the ground it has lost since its third-quarter report.
Monolithic is scheduled to release its fourth-quarter earnings report after the bell on Feb. 6.
Read the original article on Investopedia