Monolithic Power Systems Shares Rise Post Citi Buy Rating

Shares of Monolithic Power Systems surged 5% following Citigroup's initiation of coverage with a buy rating and a price target of $700, signaling potential recovery despite previous market share concerns in AI sectors.

Date: 11-12-2024

AI Rating: 7

Monolithic Power Systems (NASDAQ: MPWR) saw an increase in its share price by 5% today as Citigroup initiated coverage and assigned a buy rating with a price target of $700, which represents a 17.6% upside. This move reflects investor confidence in Monolithic, especially after the stock had declined by 35% due to concerns about losing market share in its AI segment.

The report emphasizes the company's ability to maintain its revenue growth, forecasting a consistent 20% growth rate based on the last decade's performance. This positive outlook is partly due to Monolithic’s strong position in power control chips used across various technology applications, especially in AI, where demand has surged.

Despite previous fears noted by Edgewater Research about market share losses in Nvidia's Blackwell AI server power module, Citigroup seems to think that the recent decline in share price already accounts for this risk. They highlighted that the enterprise data segment, which includes relevant Nvidia-based revenue, grew to be the largest and fastest-growing segment of Monolithic but only constituted under 30% of the total revenues last quarter. Thus, even with potential market share losses in certain products, the company's overall growth prospects remain intact.

Monolithic's hardcore defense against performance issue allegations has helped bolster confidence, and their affirmation of ongoing partnerships with Nvidia adds to the positive sentiment. However, the report does acknowledge the pressures as Monolithic's valuations are steep at 37.5 times next year's earnings, which raises questions on how much they can outperform these high expectations.

Stocks: MPWR NVDA