Monolithic Power Systems: A Compelling Case for Undervaluation Amid Sector Growth

Monolithic Power Systems Inc. (MPWR) has long been a standout in the power electronics sector, but its current valuation metrics suggest an even more compelling opportunity. As of December 2025, the company trades at a price-to-earnings (P/E) ratio of 24.16, a sharp decline from its 10-year historical average of 64.29 and significantly below the semiconductor industry's average P/E of 46.02. This divergence raises a critical question: Is MPWR undervalued given its robust growth trajectory in a sector poised for expansion?

A P/E Ratio at a Discount to Peers and History

MPWR's current P/E ratio reflects a 47.87% drop compared to its four-quarter average, signaling a potential dislocation in market sentiment. While a lower P/E can indicate undervaluation, it must be contextualized against growth expectations. For MPWR, the contrast with peers is stark: NXP Semiconductors N.V. trades at 27.03, and ASE Technology Holding Co., Ltd. at 31.97. These multiples suggest that MPWR is priced at a discount to its immediate competitors, despite outperforming many in revenue growth and market share expansion.

The company's trailing twelve months (TTM) earnings per share (EPS) of $13.20 and a non-GAAP gross margin of 55.5% underscore its operational efficiency. Yet, the market appears to be pricing in a future of declining earnings, with analyst forecasts projecting a 6.1% compound annual decline in earnings for 2025–2026. This expectation contrasts sharply with MPWR's recent performance, where Q1 2025 revenue surged 39.2% year-over-year to $637.6 million, and full-year 2024 revenue hit $2.21 billion-a 21.2% increase.

Growth Drivers Outpace Earnings Forecasts

The disconnect between MPWR's revenue growth and earnings projections may stem from near-term challenges in scaling profitability. For instance, while the company's Storage & Computing segment grew 77.7% year-over-year to $188.5 million in Q1 2025, and its Automotive segment rose 66.4% to $144.9 million, these gains have not yet translated into proportional EPS growth. Analysts anticipate a 6.2% annual decline in EPS yet this forecast overlooks MPWR's long-term positioning in high-growth areas.

The Enterprise Data segment, for example, is expected to expand from $150 million in 2024 to $500–600 million by late 2025, driven by AI-related demand. Additionally, MPWR's partnership with NVIDIA on 800 VDC data center power infrastructure positions it to benefit from a $100 billion market opportunity by 2027–2028. These tailwinds suggest that the current earnings decline may be temporary, as the company capitalizes on secular trends.

Reconciling the PEG Ratio: A Case for Undervaluation

To assess whether MPWR's P/E ratio justifies its growth, we turn to the price-to-earnings-to-growth (PEG) ratio. Using the 6.1% earnings decline forecast MPWR's PEG ratio would technically be negative, implying overvaluation. However, this metric fails to account for the company's revenue growth of 14.5% annually and its projected 20% growth in 2026. If we instead use the more optimistic 25.68% EPS growth estimate for 2025 the PEG ratio becomes 0.95 (24.16 P/E divided by 25.68% growth), suggesting a fair valuation.

The key lies in reconciling short-term earnings pressures with long-term revenue momentum. MPWR's return on equity (ROE) of 53% as of September 2025-far above the industry average of 10%-demonstrates its ability to generate returns even amid macroeconomic headwinds. Moreover, its debt-free balance sheet and 55.5% gross margin provide flexibility to reinvest in growth or navigate downturns.

Risks and Considerations

Critics may argue that MPWR's exposure to cyclical markets, such as automotive and data centers, introduces volatility. However, the company's diversified revenue streams-spanning 2.5% of the analog sector's market share-mitigate this risk. Additionally, management's confidence in 20% growth for 2026 and analyst price targets implying a 10–24% upside suggest that the market's pessimism may be overcorrecting.

Conclusion: A Stock Poised for Re-rating

Monolithic Power Systems' current P/E ratio of 24.16 is a stark discount to both its historical norms and industry peers. While near-term earnings forecasts are bearish, the company's revenue growth, operational leverage, and exposure to AI-driven demand create a strong case for undervaluation. Investors who can look beyond short-term volatility may find MPWR's valuation compelling, particularly as it scales its Enterprise Data segment and executes on its NVIDIA partnership. In a sector where innovation and execution often outpace expectations, MPWR appears to be a stock waiting for a re-rating.