MPS is a fabless company active in the analog and mixed-signal markets, two key semiconductor areas. In concrete terms, the company's products (modules, integrated circuits, chips) are aimed at a wide range of applications:

  • Storage solutions, notebooks and printers (27.3% of sales)
  • Data centers and corporate IT workstations (20.8%)
  • Automotive connectivity (20%)
  • Electronic devices such as televisions, home appliances, consoles and lighting (13.1%)
  • Communications solutions, mainly 5G, satellite applications and infrastructure (9.9%)
  • Multiple industry needs, including energy, smart metering, security and automation (8.9%)

The sales breakdown by activity is shown below. Over the years, MPS has completely reorganized its portfolio towards higher value-added applications, including data centers, IT workstations, automotive and storage (source: MPS, Investor Presentation).

By addressing constantly evolving markets and relying on innovation, MPS has adapted its technologies to new expectations. For example, in the 2010s, the Consumer segment (technological devices for the general public) accounted for 65.1% of sales, compared with just 13.1% today. Today, the need for storage and data centers is far greater than it was ten years ago. As a result, these two areas now account for 48.1% of sales, compared with just 10.4% in 2010.

Evolution of the addressable market (source: MPS)

This constant adaptation is one of MPS's key strengths. The company surfs trends. Servers, data centers and AI should account for a large share of sales in the years ahead. Nvidia has recently become a major customer in these fields. The same applies to the automotive sector. MPS markets chips for electric vehicles, mainly for the traction inverter (which forms a large part of the powertrain), on-board chargers and fast-charging stations.

MPS is on the rise in some key tech areas (source: MPS Analyst Presentation)

The same applies to the automotive sector, with a few examples of chip applications (source: MPS).

Financially, MPS has little to complain about. Profitability has progressed impressively, with operating margin rising from 18.7% in 2013 to 35.2% last year. The fabless model enables the company to keep costs down. Growth investments, referred to as capex in the income statement, represent just over 3% of sales. As a result, the company's impeccable financial record has enabled it to report exponentially rising earnings per share over the past decade, despite a 29.1% increase in the number of shares outstanding. Cash and cash equivalents are well-stocked, at almost $1 billion. The company's senior executives are shareholders (3% in aggregate for the founder and CEO). Finally, in general, MPS publishes beyond expectations.

This quality comes at a high price. Especially in the technology sector. The P/E is close to 80x for this year and close to 60x for next year. Enterprise value represents more than 16 times sales. A colossal figure. But the latest published results show strong demand for control modules and other hardware used in AI. And like Nvidia or Super Micro Computer, investors don't count when it comes to AI and gigantic future profits. Valuation therefore also characterizes major expectations about future growth. But beware: the slightest misstep risks being violently punished.

MPS is a quality growth company. All the fundamentals are in the green. What's more, visibility is good and the company is riding the AI trend. As a result, it's advisable not to rely too much on valuation ratios with such a specimen, especially in the current period. Even so, the current price is close to the average target of the 19 analysts who follow the stock, i.e. $749. A pullback in the stock could be put to good use for the long term.

MPS vs S&P500 since 2013 (source: MarketScreener)