Why Monolithic Power Systems (MPWR) Shares Are Trading Lower Today

What Happened?

Shares of power management chips maker Monolithic Power Systems (NASDAQ:MPWR) fell 3.1% in the afternoon session after broad sell-off in the semiconductor sector, triggered by a disappointing forecast from peer chipmaker Marvell Technology. 

Marvell's shares plunged after the company issued a weaker-than-expected sales outlook and reported that its second-quarter data center revenue missed estimates. This news has stoked concerns about a potential cooling in the artificial intelligence (AI) chip market, which has recently seen elevated expectations. The weak guidance from a major industry player has created negative sentiment across the industry, putting pressure on the entire semiconductor sector. Reflecting the broad downturn, the PHLX Semiconductor Index (SOX) dropped more than 3% during the session.

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What Is The Market Telling Us

Monolithic Power Systems’s shares are extremely volatile and have had 30 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 17 days ago when the stock gained 5% on the news that the semiconductor sector rallied in intraday trading as a favorable inflation report bolstered investor hopes for a potential Federal Reserve interest rate cut. The latest Consumer Price Index (CPI) data showed a slowdown in inflation, fueling a broad market rally that pushed the S&P 500 and Nasdaq to new all-time highs. For the capital-intensive semiconductor industry, the prospect of lower interest rates is particularly welcome, as it can reduce borrowing costs for expansion and research and development. The positive macroeconomic sentiment provided a significant tailwind for the entire sector, as investors anticipate that a more accommodative monetary policy from the central bank will stimulate economic growth and demand for technology.

Monolithic Power Systems is up 40.3% since the beginning of the year, but at $833.84 per share, it is still trading 11.7% below its 52-week high of $944.39 from September 2024. Investors who bought $1,000 worth of Monolithic Power Systems’s shares 5 years ago would now be looking at an investment worth $3,122.

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