Monolithic Power Systems: Optimistic Forecasts Despite Price Drop

Shares of Monolithic Power Systems have lost more than 30% of their value since their record high last year. This followed the last quarterly report of the semiconductor company, which was released at the end of October. Despite this downturn, analysts remain optimistic about the stock. Analysts at Deutsche Bank recently added Monolithic's stock to their list of "Top Picks," describing the recent price decline as a "buying opportunity." They reiterated their buy recommendation and set a price target of $900. The analysts expect revenue growth and margin improvement over the next two years, which are anticipated to serve as positive drivers. Although Monolithic exceeded earnings expectations in the third quarter, the forecast of "largely stagnant" revenue growth in the fourth quarter led to a 17% plunge in the stock price in one day. Additional losses occurred in November when reports emerged that Nvidia might reduce the number of components sourced from Monolithic for the Blackwell platform. Until then, Blackwell had been considered a positive factor for Monolithic's stock. According to Deutsche Bank's assessment, even with declining shares as Nvidia's supplier, solid growth rates in the AI sector can still be achieved as the market of potential customers expands. Although the valuation is "at the upper end of our comfort range," it is justified by the "consistent execution, above-average growth, the diversity of growth drivers, and the sustainable potential for margin expansion." Of the eleven analysts surveyed by Visible Alpha, ten rate the stock as a "buy," while one rates it as "hold." The average price target of $822.91 is significantly above the closing price on Friday of $625.82, suggesting that analysts expect the stock to recover most of its lost ground since the third-quarter report. The release of Monolithic's fourth-quarter report is scheduled for February 6 after market close.