Monolithic Power Systems: Will Strong Earnings Spark a Recovery?
For the technology sector, 2025 has been a year characterized by losses, but Monolithic Power Systems (NASDAQ: MPWR) has flipped the script.
As of the May 7 close, the Technology Select Sector SPDR Fund (NYSEARCA: XLK) has provided a total return of approximately -8% on the year. Meanwhile, Monolithic has a total return of approximately +8%.
This is largely because when it has come time to show how well the business has actually been performing, Monolithic has risen to the occasion.
Monolithic's shares rose 9% after its February earnings release and almost 6% after its latest earnings release on May 1.
However, the stock still trades around 34% below its 52-week high. This begs the question: Is this just the beginning of Monolithic Power Systems' stock recovery?
Monolithic Gets Three Gold Stars on Earnings Release
Monolithic primarily makes power chips, which regulate the use of energy within different technological systems. Companies use its chips in almost every broad end market, including powering AI server racks, cars, and industrial electronics.
Looking at three key metrics from the company’s latest earnings—revenue, adjusted earnings per share (EPS), and guidance, Monolithic impressed on all fronts. The company saw total revenues rise by 39% to nearly $638 million. This growth rate was about 1% higher than analysts forecasted. Its adjusted EPS rose by almost 44% to $4.04, also about 1% faster than anticipated. However, likely the biggest surprise came in the company’s Q2 revenue guidance, where it forecasted growth of 28% at the midpoint, exceeding expectations by almost 3%.
NVIDIA Nightmare Comes True, But Diversification Is Paying Off Big-Time
Monolithic is still dealing with the fallout of its relationship with NVIDIA (NASDAQ: NVDA). In late 2024, a report revealed that the company would lose a lot of market share in powering NVIDIA’s new Blackwell server racks. This report caused Monolithic shares to drop around 40% in just two weeks. That report seems to have proven accurate. Revenue from the company’s Enterprise Data segment dropped 11% from the prior year and 31% from Q4 2024.
However, the beautiful thing about Monolithic Power Systems is its vast diversification across its end markets. The company’s Enterprise Data segment makes up just 33% of total revenue, and all of its other end markets make up at least 6% of total revenue. This is important, considering that every end market besides Enterprise Data grew by more than 40% from the previous year. These five end markets also all grew from Q4 2024, with the exception of Consumer, which declined by less than 1%. All this is to say that it is evident that Monolithic can still grow briskly, even if its relationship with NVIDIA took a big hit. Additionally, the company noted that it is still earning design wins in the enterprise data end market and expects revenue to ramp up in the year's second half. Overall, the company has indicated that Enterprise Data revenue could be “flat plus or minus 20%” in 2025.
The earnings call also revealed some good news: the company expects no major effects from tariffs. They do not see effects on their costs or customer demand. This is important because around 37% of their revenue comes from China. The company emphasized its “China for China” supply chain. This means that manufacturers make chips for Chinese customers in China, while they produce chips for non-Chinese customers outside China. This local manufacturing focus helps avoid the effects of tariffs.
Analysts Eye 14% Upside, But Long-Term Opportunity May Provide Much More
MarketBeat tracked mixed updates on Wall Street price targets after earnings. Some upped their targets, some lowered them, and some reiterated. However, these analyst price targets still indicate a solid 12-month upside for Monolithic.
On average, their price targets indicate an upside of 14% compared to the stock’s May 7 closing price.
Still, whether Monolithic stock will continue rising in 2025 is hard to say, given the extensive cyclicality of the semiconductor industry. However, its value as a long-term investment case remains strong.
As the world continues to become more technologically advanced, there is a need for Monolithic to produce increasingly advanced chips to power those technologies.
The company’s broad diversification by end market means its success is not dependent on the success of one industry, let alone one customer. Additionally, the company’s smartly-placed supply chain puts it in a good position regarding tariffs.
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