Analyst Note| William Kerwin |
We’re raising our fair value estimate for wide-moat Monolithic Power Systems to $340 per share from $315 after the power chipmaker reported first-quarter sales above the top end of its guidance range and guided for rapid growth. We think MPS’ cutting-edge chip designs present a compelling value proposition to customers looking to save energy or space in systems, and will enable MPS to sustainably steal market share from traditional analog incumbents. We think 54% year-over-year top line growth—well above the broader chip market—is evidence of this thesis playing out, with 37% of first-quarter revenue coming from “new” products introduced in the last three years. The success of new products (like MPS’ flagship QSMod) also reinforces our expectations that MPS will steadily expand its gross margins over the next 10 years. We forecast strong new product mix, which buoys average selling price, and manufacturing efficiency gains to drive GAAP gross margins above 60% in 2030, compared to 55% in 2020. The rate of new product adoption is even impressing management, who now expects to sustain above 20% annual growth with demand normalizing. We’re now expecting full year 2021 sales growth of 31%, inclusive of tougher year-over-year comparisons in the second half after 50%+ year-over-year growth next quarter. At our updated valuation, we think shares are fairly valued.