Investing

This Red-Hot AI Stock Could Split Its Shares in July

Eric Bleeker

Published: June 30, 2024 9:16 am

Stock split mania has hit the market. Chipotle (NYSE: CMG) just completed its 50:1 stock splits and AI leaders NVIDIA (Nasdaq: NVDA) and Broadcom (Nasdaq: AVGO) followed with their own split announcements that saw a positive reaction from investors. We’re looking at another AI stock that could split next and is very under the radar.

Why Monolithic Power Systems Could be Tech’s Next Stock Split

Below are some highlights from the discussion between 24/7 Wall Street Analysts Austin Smith and Eric Bleeker. 

• A stock not on the radar of most investors that could split, potentially as early as this month, is Monolithic Power Systems (Nasdaq: MPWR).
• We’ve talked a lot about Super Micro Computer (Nasdaq: SMCI) and its potential to split when it announces earnings in August, but Monolithic should report earnings first and has a lot of qualities of a stock split candidate.
• The company creates power management systems, which isn’t a category many technology investors are watching.
• However, the returns speak for themselves. Monolithic Power Systems is up about 500% in the past 5 years and 60% in the past year. Let’s explore why.
• The big trend Monolithic Power Systems is riding is the growth of AI data centers.
• AI chips are very power-intensive. A B200 chip has more than 200 billion transistors, which adds up to a lot of power draw when you combine potentially tens of thousands into the largest clusters we’ll see put into data centers across the next year.
• So, the unique architecture of AI chips – mostly sold by NVIDIA today – has created winners across the artificial intelligence value chain of companies whose products are best suited to these chips.
• You can look at Vertiv (NYSE: VRT) being up 275% thanks to the growth of liquid cooling as another example. There’s also winners that build the unique advanced packaging required for newer AI chips. Then you have server companies like Super Micro Computer that specializes in building AI servers themselves.
• That’s where we first got interested in Monolithic Power; seeing teardowns of AI servers and the value of the power components they’re selling.
• The company had put an emphasis on the high-power end market, which is booming thanks to the growth of AI.
• The biggest critique of Monolithic is the stock is priced for perfection. Wall Street expects a little under $500 million in profits this year, and it trades for $40 billion. That’s an extremely rich price to pay.
• Still, the company trades for about $830 per share, which is an expensive per-share price.
• And it’s expected to announce earnings at the end of July. So, there’s just a lot of talk about which stocks could split next given the recent performance of stocks that announced splits, and I wanted to get this one on investor’s radar. 
• Once again, stocks that have announced splits recently have seen impressive performance in the week after, so it’s a category worth watching.

Transcript:

Eric, we’ve been on stock split watch with regards to technology, specifically around companies in the AI space.

So as a lot of meaningful investment and excitement and attention has come into AI, we’ve seen a lot of these share prices absolutely catapult up 50%, 100% or more.

And now we’re seeing prices in the triple digits and often sometimes over $1,000 per share.

So we’re looking at an AI stock split that could occur in July.

So we’ve talked about Supermicro Computer as likely next unit to split shares, but you’ve also looked at another stock split unit that probably isn’t on the radar for many investors.

What are we looking at today?

Yeah, the stock is Monolithic Power Systems.

It’s actually headquartered right next to where I grew up.

It’s a stock I first purchased in the spring of 2023, and I still do own it today.

Obviously, creating power management is a market many investors, especially cutting edge ones, typically watching Nvidia and other related stocks would watch.

But monolithic power systems is up about 500% in the past five years.

It’s up 60% in the past year.

So let’s explore why.

I’m sure everyone watching has heard about the power needs from data centers.

There’s all kinds of stats requiring as much power consumption as the entire nation of Japan by 2026.

And the reason behind that is AI chips.

They’re very power intensive.

On the new B200, you’ve got 200 billion transistors each with the infinitesimally small power draw that when combined at 200 billion begins to really add up.

And the unique architecture of AI chips has flowing consequences across the artificial intelligence value chain.

It’s bringing new winners and companies that specialize in solving the needs of AI data science.

Bird of up 275% in the past year, and that’s thanks to liquid cooling as another solution to this problem.

And there’s other winners creating things like advanced packaging, or you even got the server companies.

We mentioned Super Micro Computer earlier, which has been a huge winner thanks to their specialty in AI servers.

So I first got interested in monolithic power while researching teardowns of AI servers and looking at what components commanded the most value.

And monolithic, it put a particular emphasis on the high power end market, which I thought was going to take off if the boom in AI materialized as it had.

Now, you can imagine, as I noted, this has played out.

And the biggest critique of monolithic is its price for perfection.

Wall Street expects a low under $500 million profits this year, trades for $40 billion.

You can do the math.

That’s about 80 times earnings.

That’s an extremely rich price to pay.

Still, the company is trading today for $830 per share.

which is extremely expensive on a per share basis.

It’s one of the most expensive stocks in the market, and it’s expected to announce earnings at the tail end of July.

So, you know, there’s just a lot of talk about which stocks can split next.

Given the recent performance of stocks that announced splits and video was up, nearly 50% the month after announcing its split.

Broadcom was up 22% the three days after its split.

Even Chipotle saw a big boom in its share price after announcing a split.

So this is extremely under the radar.

I’m not guaranteeing a split, but it has the right components.

It’s got the share price.

It’s got a lot of the recent return of other companies we’ve seen announce splits.

And if you’re an investor, who’s interested in trying to get ahead of these split announcements because of recent performance.

Well, I think this is a stock you could take a flyer on or at least add to a watch list and continue monitoring.

Well, there you have it, Eric.

Thank you so much.

The stock we’re talking about today is monolithic power.

And Eric, as you said, we’ve seen a recent trend with stock splits, which is one of the reasons we’ve been paying so much attention to them, where companies have typically risen five, seven, sometimes even 10% immediately following the announcement of their split.

Now, the sort of wonky view is that at the fundamental level, it doesn’t matter.

The economics are the same.

We ourselves have talked about that.

But then the more sort of practical real view is that, well, shares got to the level where they needed to split because of So often the need to split shares is simply a reflection of all of the success that a company has achieved up until that point.

And it also indicates to investors that management pays attention to the stock and they want to make it more accessible to retail investors, which is hugely important.

If you’re going to be an investor, do you want an indifferent management that’s just going to not consider their share price at all or management that’s actually going to recognize that the share price is an important factor for investors investing their stocks?

Well, it might not change anything at a fundamental or mathematical level.

It is a sign of positive growth and of an active management, which is something that investors should want in their positions.