This Nvidia Supplier’s Stock Is Down 30% in 3 Months—Here’s Why Deutsche Bank Says It’s Still a Buy

The Key Takeaways

• Monolithic Power Systems shares are down more than 30% from its latest earnings report, which was at the end October.
• The company's fourth-quarter outlook and reports that its sales to Nvidia could decline sent shares sharply lower in the last months of the year.
• Analysts are still bullish and cite the growing market for AI related customers to boost revenue in coming years.

Shares of Monolithic Power Systems have fallen more than 30 percent since its last earnings report, which was at the end October. Analysts are still bullish, however.

In a note earlier this week, Deutsche Bank analysts added Monolithic's stock to its list of "top picks," and called its recent slide a "buying opportunity." The analysts reiterated their "buy" rating and a $900 price target, citing likely revenue growth and improving margins over the next two years as positive catalysts.

Nvidia shares fell as a result of modest Q4 projections and a possible reduction in sales.

Monolithic beat earnings estimates in the third quarter, but the company's forecast that revenue growth would be "roughly flat" in the fourth quarter shook investors and its stock plunged 17% in a day.

In November, shares took another blow when a news report claimed that Nvidia’s (NVDA), was looking at reducing its purchases of Monolithic components for the Blackwell platform. Blackwell was cited by analysts as being a catalyst to Monolithic’s stock.

Expanding AI Market, 'Diversity of Growth Drivers' Could Help Monolithic

Deutsche Bank analysts wrote that even if Monolithic loses share among Nvidia's suppliers, the company should "continue to deliver solid AI-related growth" as the market of potential customers continues to expand.

While the company's valuation is "at the high end of our comfort range," the analysts said it's justified because of Monolithic's "consistent execution, above-industry growth, diversity of growth drivers, and sustainable margin-expansion potential."

Ten of the 11 analysts tracked by Visible Alpha rate the hardware maker's stock as a "buy" along with one "hold" rating. The average price target of $822.91 is more than 30% above Friday's closing price of $625.82, suggesting analysts think the stock will make up most of the ground it has lost since its third-quarter report.

Monolithic’s fourth-quarter results will be released after the Bell on Friday, February 6.

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