Monolithic Power Looks Undervalued to Our $450 FVE After Tech Selloff

We view Monolithic Power Systems, or MPS, as undervalued, and reiterate our $450 per share fair value estimate. MPS shares have tumbled more than 20% since the start of 2022, but we view this as a symptom of a broader sell-off in the technology sector (the PHLX semiconductor index is down 17% year to date). We continue to view MPS’ growth prospects as sturdy and its wide economic moat intact. We think technology stocks have sold off from a flight to safety by investors concerned about inflationary pressures and chip stocks have been especially punished over concerns of the current tight supply environment receding sometime in the coming year. We aren’t overly worried about MPS’ prospects upon a potential supply glut, as we think its highly integrated chips win designs in sticky applications where they aren’t easily replaced, and command pricing power for it. MPS shares closed Tuesday at a 17% discount to our fair value, and we think this is an attractive entry opportunity for investors.