With most tech stocks ravaged by this year's bear market, semiconductor sector leader Nvidia remains absent from the list of new buys by the best mutual funds. But industry peer Monolithic Power Systems has earned a spot on that screen. MPWR stock is trying to complete a base and ignite a new breakout after gapping up on earnings earlier this month.
With a track record of earnings stability, Monolithic has powered its way onto IBD Long-Term Leaders. It has also claimed placement on the IBD Leaderboard watchlist.
While MPWR stock has pulled back to fill the gap it flashed on Aug. 1 after reporting Q2 earnings on Aug. 1, it remains above both its 50-day and 200-day moving averages. In a sign of improving technical strength, the 50-day line is trending upward and close to crossing back over the 200-day benchmark.
Meanwhile, NVDA stock trades below both moving averages. On Friday, Nvidia fell back below its 50-day line in heavy volume as the market indexes sold off. Selling pressure continues to kick off the new week.
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Monolithic Power Systems Accelerates — Again
Headquartered in Kirkland, Wash., Monolithic Power Systems is a global provider of high-performance, semiconductor-based power electronics solutions. The company's footprint spans a wide range of industries, including automotive, cloud computing, telecom, consumer electronics, industrial applications and more.
Hailing from the fabless semiconductor industry group alongside Nvidia, Monolithic Power Systems has three core strengths: deep system-level knowledge, semiconductor design expertise, and innovative proprietary semiconductor process and system integration technologies.
In Q2, the company posted 80% year-over-year earnings growth, marking a third quarter of acceleration. The semiconductor sector leader has now generated average EPS growth of 70% over the last three quarters. Earnings growth has averaged 38% over the last three years.
Sales growth has also averaged 38% over the last three years. In Q2, Monolithic posted a 57% revenue increase. That marks a third consecutive quarter of acceleration.
In another contrast with its industry group peer, Nvidia saw sales growth of just 3% last quarter. Earnings growth decelerated 51%.
Can MPWR Stock Power A Later-Stage Breakout?
With a 96 Composite Rating, MPWR stock leads its peers in terms of key stock-picking traits. NVDA stock has slipped to a 47 Composite Rating.
A relatively steep trendline suggested an early entry near 460 in March, but it was an aggressive entry. The stock was still 20% below the pattern's left-side peak.
Monolithic is currently working on a cup with handle. The chart pattern could be viewed as a fourth-stage base, which entails more risk and chance of failure. The buy point is 541.49.
While the stock pulled back during the second half of August, it has come off its lows for the day Monday as it tries to complete the handle and break out.
The relative strength line for MPWR stock has fallen off the highs it hit after its earnings gap-up. Look for the RS line to trend higher to show renewed market leadership as Monolithic takes aim at a breakout.
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
