Monolithic Power Systems (NASDAQ: MPWR) is a chip stock that isn’t nearly as talked about as some other companies in its industry, like NVIDIA (NASDAQ: NVDA) or Taiwan Semiconductor Manufacturing (NYSE: TSM). But that doesn’t mean the company hasn’t had great success over the years. It has been able to amass a value of nearly $28 billion, a number that looks much smaller after the last few weeks. Since Oct. 29, the company has lost over 39% of its value.

However, regardless of what the market says, it’s fair to question whether this massive drop justifies itself. Has the company’s intrinsic value really dropped by $18 billion in a mere two weeks, or is the market overreacting to recent news?

Monolithic’s Chips Power the Industry

First, it is important to understand what Monolithic does. Monolithic designs power chips. These chips regulate the use of power in other chips, like an NVIDIA AI accelerator, for example. This ensures that chip has the right amount of power, in the right places, at the right time, so that it can perform properly and efficiently.

Because Monolithic’s chips regulate the power of other chips, they are needed in all parts of the semiconductor industry. This is evident when looking at the company’s financials. It generates significant amounts of revenue from enterprise data, storage, automotive, consumer, and industrial semiconductor applications.

Two Pieces of Bad News Tank Monolithic, but Wall Street Appears Sanguine

The company’s Q3 earnings report on Oct. 30 certainly has caused concern in the market. The company's shares dropped massively on earnings. They beat expectations for revenue and adjusted earnings per share (EPS). However, the company failed to raise its guidance above expectations, the source for the drop.

There was more bad news surrounding Monolithic. An Edgewater Research report said Monolithic may lose orders to power NVIDIA's latest Blackwell chips. It cited technical performance issues as the cause. This sent shares down even more than the earnings report. Still, Needham and Oppenheimer did not change their price targets based on this.

In conversations with Needham, Monolithic defended itself against this report. It said it wasn’t aware of these technical issues and hadn't received any order cancellations from NVIDIA. The company pushed back further in another report. It stated that with Blackwell production in late stages, notification of these changes to the supply agreement would be required. It has not received such notification.

The change in Wall Street price targets has not been even close to the stock’s drop in price. The target changes from TD Cowen, Needham, and Truist have fallen an average of just 9% since Oct. 30. When adding in the price targets from three more analysts that either initiated the stock or didn’t change their target, the average price target sits at $875. Based on a Friday afternoon share price of $566, that implies an upside in the shares of 55%. At first glance, it's hard to reckon that Monolithic Power Systems didn’t just go on sale.

With Other Parts of the Business Rebounding, Monolithic May Be Cheap

Another concerning point is that the company's enterprise data revenue declined slightly from the previous quarter. This isn’t great to see, as this part of the company’s business is what has been driving growth. However, enterprise data revenue was still up 86% year-over-year. Every other segment of the business saw negative year-over-year growth for at least the last three quarters.

However, in Q3, all other segments returned to growth on a year-over-year basis and increased revenues from the previous quarter. This signals that other parts of the business enterprise data growth slows, are picking up . This is important because although enterprise data revenue has grown exponentially, it only makes up 30% of total revenue.

Overall, I see the massive drop in Monolithic Power stock as an opportunity. The analyst’s price target reactions and statements from the company throw cold water on the claims made by Edgewater. Additionally, the company’s diversified business makes the risk in the enterprise data segment less worrisome. This doesn’t mean that shares can’t keep dropping from here, but this is still a strong business whose products are needed in every part of the chip market. It appears to me that shares have gone on discount.