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Monolithic Power Systems (MPWR) makes a move

February 15, 2023

Monolithic Power Systems MPWR Buy @ $520

Vance Semiconductor ETF SMH Buy @ $253

Monolithic Power Systems (MPWR) made a breakout from a huge pattern back in 2014. Since then the shares have risen more than 20-fold. It is one of these companies which falls a bit below the radar but delivers amazing results year after year. Below is how the company describes itself.

Monolithic Power Systems, Inc. is a global company that provides high-performance, semiconductor-based power electronics solutions. The company’s mission is to reduce energy and material consumption to improve all aspects of quality of life. Formed in 1997 by CEO Michael Hsing, the company has three core strengths: deep system-level knowledge, strong semiconductor design expertise, and innovative proprietary semiconductor process and system integration technologies. These combined advantages enable MPS to provide customers with reliable, compact, monolithic solutions that offer highly energy efficient, cost-effective products, as well as provide a consistent return on investment to our shareholders.

Web site

It reminds me a little of TSMC (Taiwan Semiconductor Manufacturing) except that the latter is much bigger with a market value of $464bn v $23.5bn for MPWR. This very smallness creates opportunities for MPWR operating in such a gigantic industry which is so central to technological progress.

The ETF which holds the most MPWR is SMH, charted below.

MPWR is number 21 on the list of SMH largest holdings but has a strikingly similar chart suggesting that the big ‘something new’ that happened in 2014 to send share prices higher affected the whole industry. What is happening now looks very like another consolidation in a continuing uptrend, which would hardly be surprising given that there is no sign that the technology revolution has slowed down or even stopped accelerating.

SMH is an appealing buy for a combination of safety and performance given that its holdings are spread across the semiconductor industry. The shares are up roughly 20-fold since 2009 and six fold since 2013.

MPWR has done better and that trend may well continue. Since 2009 the shares are up 74-fold and since 2013 up 20-fold.

MPWR had an amazing year in 2022.

For the full year 2022, MPS achieved record revenue of $1.79 billion, growing 48.5pc from the prior year. This is despite industry-wide supply chain capacity constraints. This performance represented consistent execution against our strategies and having more tier one customers recognize MPS for advanced technologies, product quality, and excellent customer support.

Q4 2022, 8 February 2023

There is a lot going on at the company.

We continued to diversify our global footprint with expansion of our R&D centers, supply chain partnerships, and facilities outside of China to better match our resource distribution with our customers’ geographic demand profile. With our global presence, we believe MPS is in a strong position to support our customers worldwide.

Q4 2022, 8 February 2023

There is some near term caution but the business is in great shape and looks as exciting as ever.

In conclusion, while we remain cautious about near-term business conditions, we believe MPS can swiftly adapt to market changes and take advantage of the current environment to focus on business development and investing in infrastructure necessary to support long-term growth.

Q4 2022, 8 February 2023

Strategy

When you look at the MPWR chart you can see that it was affected by the 2022 bear market/ interest rate shock but also that it is recovering with even greater speed. This is a sign of a share that wants to go higher. The SMH chart carries a similar message about the whole sector. The world needs more and better semiconductors and will continue to do so for the foreseeable future.

Both MPWR and SMH look to me like strong buys and Coppock is saying that they are timely to buy right now.

Further reading

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