Monolithic Power Earnings: Surging AI Spending Helps Buoy Results, but Shares Look Out of Reach

We raise our fair value estimate for wide-moat Monolithic Power Systems to $540 per share, from $535, as we raise our long-term expectations for revenue from artificial intelligence, or AI, applications. We are also lowering our estimates for MPS’ other end markets in 2024 behind choppier short-term demand. MPS excels at power efficiency, which has earned its power management chips strong placement alongside Nvidia GPUs that serve power-intensive AI models. While we expect surging AI investment to draw in new entrants to compete with MPS, we believe the firm’s position exemplifies its moaty intangible assets in power chip design, which should enable it to keep a strong market share. We expect growth in 2024 but stronger growth thereafter under healthier end market conditions outside of AI. Nevertheless, we see shares as overvalued for this high-quality company.