Monolithic Power Earnings: Soaring Data Center and AI Sales Lifts Our Valuation to $700 From $600

We raise our fair value estimate for wide-moat Monolithic Power Systems to $700 per share from $600 as we lift our growth expectations for data center and artificial intelligence sales. Second-quarter results beat our model and third-quarter guidance was significantly higher than we expected. We believe MPS’ differentiated power management chips are earning strong placements next to graphics processing units from the likes of Nvidia, driving impressive growth. The firm’s differentiated power management expertise also drives our wide moat rating and continuing share gains across numerous end-markets. Many of MPS’ other end markets remain soft, and we model these trends to persist through 2024. However, we maintain our belief in MPS’ strength as a disruptor in the power chip market and expect the firm to benefit from recovering end markets in the coming years alongside AI growth. Nevertheless, valuation is challenging for us for this high-quality chipmaker.