Monolithic Power Systems, a maker of power-management chips used in servers and networking gear, is expected to report third-quarter earnings on Thursday. Wall Street firm Oppenheimer believes the company could beat expectations, driven by strong demand from AI data centers, and may also set a higher bar for the fourth quarter.
Oppenheimer projects that Monolithic Power's enterprise-data sales will jump 33% in Q3 compared with the previous quarter, fueled by rising orders tied to AI accelerators and custom chips. The firm also sees communications sales rising 20% as more networking equipment is deployed. These gains reflect the growing need for efficient power management in data centers, which are becoming increasingly power-hungry as AI workloads expand.
Why AI data centers need Monolithic Power's chips
Monolithic Power designs and sells integrated circuits that regulate and convert electricity inside servers and other electronics. In an AI data center, every watt counts—servers packed with graphics processing units (GPUs) and custom AI chips consume enormous amounts of power, and managing that power efficiently is critical to keeping costs down and preventing overheating. Monolithic Power's components help ensure that electricity flows smoothly and efficiently, making them essential to the AI infrastructure buildout.
The company's products are used in a range of applications, from data centers to automotive and industrial equipment. But the recent surge in AI investment has made enterprise data a key growth driver. As tech giants and cloud providers race to build out AI capabilities, they are buying more of the chips that make those systems work.
Oppenheimer's upbeat view on Q3 and Q4 comes even as the firm trimmed its price target on Monolithic Power to $1,500 from $1,700. The stock recently traded around $1,157, so the new target still implies significant upside. But the cut signals that valuation assumptions are shifting, even when the underlying business story appears intact.
What the price-target cut means for investors
Oppenheimer also raised its longer-term earnings forecasts, now projecting earnings per share of $27.78 in 2026, $36.75 in 2027, and $42.54 in 2028. That combination—higher profit estimates but a lower price target—points to a debate about how much investors are willing to pay for those future profits.
Using Oppenheimer's figures, the $1,500 target implies a price-to-earnings (P/E) ratio of about 54 times its 2026 EPS forecast. At the current stock price of $1,157, the P/E is roughly 42 times. That's a premium valuation by most standards, reflecting the market's high expectations for AI-related growth. The question for investors is whether Monolithic Power's results will justify maintaining that premium, or whether the multiple will compress as the stock price adjusts.
For everyday investors, this means the stock's reaction to Thursday's earnings may hinge less on whether Q3 and Q4 demand is strong—Oppenheimer expects it to be—and more on whether the market believes the growth is sustainable enough to support a rich valuation. If the company beats expectations but the stock falls, it could be because investors are recalibrating how much they're willing to pay for future earnings.
Broader context: AI demand and market sentiment
Monolithic Power is part of a broader wave of companies benefiting from the AI boom. Data center operators and chipmakers have seen surging demand as businesses and governments invest heavily in artificial intelligence. However, that enthusiasm has also led to high valuations across the sector, and any sign of a slowdown can trigger sharp sell-offs.
Oppenheimer's note comes amid a mixed backdrop for tech stocks. While AI-related names have been strong performers, some investors are becoming more cautious about stretched valuations. The firm's decision to cut its price target, even while raising earnings estimates, reflects that caution.
Investors will be watching Monolithic Power's earnings report closely, not just for the numbers but for management's guidance on future demand. If the company signals that AI orders are accelerating, that could support the stock despite the valuation concerns. Conversely, any hint of softening could amplify the multiple compression already hinted at by the price-target cut.
For those who own the stock or are considering it, the key takeaway is that Monolithic Power's business appears strong, but the price already reflects a lot of optimism. As always, it's important to consider your own investment goals and risk tolerance, and to remember that past performance is not a guarantee of future results.
