Breakout Watch: AI, Machine Learning Power Rising EPS Estimates For Nvidia Peer

Boosted by growing trends in artificial intelligence (AI), machine learning and cloud computing, semiconductor industry leader Monolithic Power Systems (MPWR) will report Q1 earnings May 4.


MPWR stock joins Adobe (ADBE), Microsoft (MSFT) and ServiceNow (NOW) on IBD Long-Term Leaders. MSFT, Adobe, ServiceNow and MPWR stock are all involved in AI and machine learning. ServiceNow recently acquired India-based Intellibot, which expands its use of AI and machine learning to automate repetitive tasks.

Expanding integration of AI and machine learning isn’t the only thing these top long-term growth stocks have in common. MPWR stock, Adobe and ServiceNow are all testing new buy points. Microsoft stock broke out in early April and is now slightly extended.

MPWR stock has also joined fellow semiconductor sector and AI technology leader Nvidia (NVDA) on the IBD Breakout Stocks Index.

See Who Joins MPWR Stock On The IBD Breakout Stocks Index

AI, Machine Learning Help Generate Accelerating Q1 Estimates

Chip stocks Monolithic Power Systems and Nvidia both hail from the fabless semiconductor industry group. And analysts expect both AI leaders will deliver accelerating earnings growth in their next quarterly reports.

Consensus analyst estimates call for MPWR to power a 41% EPS increase, which would top the 26% gain it delivered in Q1. In the last three quarters of 2020, Monolithic Power posted average earnings growth of 33%.

The Street expects Nvidia to deliver results for its next fiscal quarter in late May, with analysts looking for an 82% EPS spike. That would top last quarter’s 64% and its average 67% growth for the last three reports.

In January, Monolithic Power Systems announced the launch of a new family of power modules targeting applications for AI and machine learning. In addition to AI and machine learning uses, the modules are geared to high-density computing and data centers, as well as multi-user gaming.

An A SMR Rating, which incorporates a 2020 30.3% pretax profit margin and 27.2% return on equity, shows the company’s fundamental strength and efficiency.

Nvidia, Microsoft, Adobe and ServiceNow also sport an A SMR Rating, earning passing grades in Stock Checkup.

Breakout Nears For MPWR Stock With Earnings Due

MPWR stock is forming a lopsided double-bottom base with a 398.99 buy point. In a healthy sign ahead of its May 4 earnings report, the stock is showing tight trading in recent weeks after finding support at its 10-week moving average.

While forming its current chart pattern, the relative strength line slumped off its highs but is back to trending in the right direction.

Boosted by promising AI and machine learning trends, ServiceNow is set to report after today’s stock market close. ServiceNow stock is nipping at the heels of a new breakout. Nvidia stock is trying to retake the buy point it initially cleared on April 13.

Follow Matthew Galgani on Twitter at @IBD_MGalgani.


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