Monolithic Power Systems’ Unabated Growth Continues in Q3; FVE up to $450

Wide-moat Monolithic Power Systems reported another strong quarter, with the top and bottom line exceeding guidance. We are raising our fair value estimate to $450 per share, up from $426, behind slightly stronger growth expectations. We continue to find significant value in MPS’ cutting-edge chip design expertise and expanding module-based integrated solutions strategy. We think a growing mix of module sales, benefiting from increasing end-market demand for system-level solutions and carrying higher ASPs, to be a material contributor to revenue growth in the long term. Shares dipped 4% after hours following the release, which we attribute to a lower gross margin guide, though we note the sequential contraction is purely due to a onetime benefit this quarter. Despite the pullback, we continue to think the market is pricing in more rapid share gains and margin expansion than we think feasible, and view shares as overvalued.