Monolithic Power Systems (MPWR)

Power management chips maker Monolithic Power Systems (NASDAQ:MPWR) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 39.2% year on year to $637.6 million. Guidance for next quarter’s revenue was optimistic at $650 million at the midpoint, 2.3% above analysts’ estimates. Its non-GAAP profit of $4.04 per share was 0.9% above analysts’ consensus estimates.

Company Overview

Founded in 1997 by its longtime CEO Michael Hsing, Monolithic Power Systems (NASDAQ:MPWR) is an analog and mixed signal chipmaker that specializes in power management chips meant to minimize total energy consumption.

Monolithic Power Systems’ peers and competitors include Analog Devices (NASDAQ:ADI), Texas Instruments (NASDAQ:TXN), Skyworks (NASDAQ:SWKS), Infineon (XTRA:IFX), NXP Semiconductors NV (NASDAQ:NXPI), ON Semi (NASDAQ:ON), Marvell Technology (NASDAQ:MRVL), and Microchip (NASDAQ:MCHP).

Longer manufacturing duration allows analog chip makers to generate greater efficiencies, leading to structurally higher gross margins than their fabless digital peers. The downside of vertical integration is that cyclicality can be more pronounced for analog chipmakers, as capacity utilization upsides work in reverse during down periods. Read More. The semiconductor industry is broadly divided into analog and digital semiconductors. Digital chips are what most people think of as the brains of almost every electronic device. Their primary purpose is to either store (memory chips) or process (CPUs/GPUs) data. By comparison, analog chips regulate real world signals, such as temperature, speed, sound, or electrical current, converting them into a stream of digital data that can be processed by digital semiconductors. Analog semiconductors are also used to manage power in any electronic device; they convert, store and distribute the electrical energy that comes from a battery or wall plug. Analog chips are found everywhere from household appliances like refrigerators or washing machines, to smartphones, cars and factory production lines.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Monolithic Power Systems’s sales grew at an incredible 29.6% compounded annual growth rate over the last five years. Its growth surpassed the average semiconductor company and shows its offerings resonate with customers, a great starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Monolithic Power Systems’s annualized revenue growth of 13.1% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Monolithic Power Systems reported wonderful year-on-year revenue growth of 39.2%, and its $637.6 million of revenue exceeded Wall Street’s estimates by 0.7%. Beyond the beat, this marks 5 straight quarters of growth, implying that Monolithic Power Systems is in the middle of its cycle - a typical upcycle generally lasts 8-10 quarters. Company management is currently guiding for a 28.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 11.8% over the next 12 months, similar to its two-year rate. Still, this projection is admirable and indicates the market is forecasting success for its products and services.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Monolithic Power Systems’s DIO came in at NaN,

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Monolithic Power Systems’s gross margin is well ahead of its semiconductor peers, and its strong pricing power is an output of its differentiated, value-add products. As you can see below, it averaged an excellent 55.4% gross margin over the last two years. Said differently, roughly $55.44 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Monolithic Power Systems has been an efficient company over the last two years. It was one of the more profitable businesses in the semiconductor sector, boasting an average operating margin of 25.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Monolithic Power Systems’s operating margin rose by 7 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Monolithic Power Systems generated an operating profit margin of 26.5%, up 5.6 percentage points year on year. The increase was solid and shows its expenses recently grew slower than its revenue, leading to higher efficiency.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Monolithic Power Systems’s EPS grew at a remarkable 30.9% compounded annual growth rate over the last five years, higher than its 29.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Monolithic Power Systems’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Monolithic Power Systems’s operating margin expanded by 7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Monolithic Power Systems reported EPS at $4.04, up from $2.81 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Monolithic Power Systems’s full-year EPS of $15.36 to grow 11.6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Monolithic Power Systems has shown terrific cash profitability, and if sustainable, puts it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the semiconductor sector, averaging an eye-popping 30.1% over the last two years.

Taking a step back, we can see that Monolithic Power Systems’s margin expanded by 3.4 percentage points over the last five years. This is encouraging because it gives the company more optionality.

Monolithic Power Systems’s free cash flow clocked in at $256.4 million in Q1, equivalent to a 40.2% margin. The company’s cash profitability regressed as it was 10.5 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Monolithic Power Systems’s five-year average ROIC was 49.2%, placing it among the best semiconductor companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Monolithic Power Systems is a profitable, well-capitalized company with $1.03 billion of cash and no debt. This position is 3.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Monolithic Power Systems’s revenue guidance for next quarter beat analysts’ expectations. We were also happy its EPS narrowly outperformed Wall Street’s estimates. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 5.3% to $570 immediately after reporting.

Updated: June 14, 2025 at 10:16 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Monolithic Power Systems, you should also grasp the company’s longer-term business quality and valuation.

Monolithic Power Systems is truly a cream-of-the-crop semiconductor company. For starters, its revenue growth was exceptional over the last five years. On top of that, its stellar ROIC suggests it has been a well-run company historically, and its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Monolithic Power Systems’s P/E ratio based on the next 12 months is 39.2x. Looking across the spectrum of semiconductor businesses, Monolithic Power Systems’s fundamentals clearly illustrate it’s a special business. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $760.88 on the company (compared to the current share price of $672.01), implying they see 13.2% upside in buying Monolithic Power Systems in the short term.