Monolithic Power Systems (MPWR) Q3 2026 earnings review
Monolithic Power Systems sales jump 63%, but stock grants double
Monolithic Power Systems, a designer of power-management chips for computers and cars, crossed $1 billion in quarterly sales as data-centre demand accelerated, though a jump in employee stock grants held back reported profit. Revenue rose 63% from a year ago to $1.20 billion, beating the top of the company's plan, while chief executive Michael Hsing pointed to broad growth across end markets. The Q4 revenue plan of $1.315–1.385 billion points to 80% growth from a year ago at the middle of the range by our math.
| Revenue | $1,202.4M +63.1% from a year ago |
|---|---|
| Enterprise Data revenue | $506.7M +164.6% from a year ago (42.1% of sales) |
| Profit per share, excluding one-offs | $8.19 +73.2% from a year ago |
| Q4 revenue outlook | $1,315–1,385M middle of the range: +79.7% growth from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because the data-centre and networking boom is still accelerating, capacity reached $6 billion with an $8 billion target dated for late 2027, and the company put $453 million into buybacks while naming Tony Balow permanent finance chief. One caution: stock-based pay nearly doubled to $106 million — almost twice what the company planned — and is set to rise again in Q4, which pulled GAAP operating margin down from last quarter while gross margin stayed stuck near 55.5%.
The question now is whether data-centre orders represent durable demand into 2027 or customer stockpiling that can be cancelled without penalty, and whether the jump in stock grants is a permanent drag on GAAP profit. Either multi-quarter AI server buildouts keep lifting sales toward the $8 billion capacity goal, or order intake cools while higher stock pay and flat gross margins squeeze reported earnings. The Q4 webinar commentary on order intake and the Q1 2027 outlook in February will tell.
🐂 Bull Case
Data-Centre Demand Pushes Sales Past $1.2 Billion
Monolithic Power Systems (MPS), a designer of chips that manage electrical power in computers and cars, passed $1 billion in quarterly revenue for the first time. Chief executive Michael Hsing said "our diversified growth strategy is paying off", but two data-centre segments supplied 79% of the quarterly sales increase by our math. Enterprise Data, which sells power chips for servers, and Communications, which powers networking gear, now represent 57.7% of total revenue.
- Enterprise Data revenue: $506.7 million, up 164.6% from a year ago and 33.2% from last quarter on "higher sales of our power management solutions for AI and server applications"
- Communications revenue: $187.4 million, up 134.7% from a year ago and 42.5% from last quarter on "higher sales of power solutions for optical modules and switches"
- Automotive and Industrial revenue: $180.7 million (up 19.2% from a year ago) and $71.4 million (up 29.0%)
- Storage and Computing and Consumer revenue: $192.2 million (up 3.0% from a year ago) and $64.0 million (down 11.6%)
This matters because the data-centre boom is still speeding up rather than cooling off. In Q2, finance chief Tony Balow set a full-year growth floor of 130% for Enterprise Data, which required about $485 million per quarter in the second half by our math. Q3 cleared that bar at $506.7 million, and the Q4 revenue plan of $1.315–1.385 billion points to 79.7% total growth from a year ago at the middle of the range.
What to watch: Q4 Enterprise Data revenue when Q4 results arrive in February. A figure above $465 million would mean the segment beat its raised full-year floor and carried momentum into 2027.
MPS Dates Its $8 Billion Capacity Target
The company has spent years working to "transform from a chip-only semiconductor supplier to a full service solution provider" by selling complete power modules instead of individual chips. To back that shift, MPS expanded its manufacturing capacity past $6 billion in annual revenue support this quarter. For the first time, management put a date on the next step: "We expect to have $8 billion of capacity in place by the second half of 2027 on our way to $10 billion".
Across its product lines, the chipmaker also moved several new designs into early commercial stages. It received first orders for 48-volt automotive power systems, started ramping sensor and motor-control parts for robots, and continued ramping chips for high-speed computer memory. In 800-volt data-centre power, it "began sampling GAN based solutions for use in 800V data center architectures complementing our existing SiC based designs", adding gallium nitride (GaN) to its silicon carbide (SiC) lineup.
What to watch: Automotive and Industrial revenue growth in the first half of 2027. A rise above 20% from a year ago would show that 48-volt car systems and robotics modules are turning into meaningful sales outside data centres.
Buybacks Jump to $453 Million and Balow Named CFO
For six quarters MPS barely touched its $500 million share-buyback plan, spending just $4.0 million in Q2, and operated without a permanent finance chief after Bernie Blegen retired. Both items moved this quarter. In a separate announcement, Hsing said, "I am very pleased to appoint Tony as our new CFO and Rob as our new CAO", promoting vice president of finance Tony Balow to finance chief and interim finance chief Robert Dean to chief accounting officer.
On capital return, the US group repurchased $453.4 million of its stock in Q3, using almost all of its original programme. In October, the board approved another $500 million in buybacks, bringing total remaining authority back to $1 billion. While the timing still shows management bought after the business accelerated rather than during last year's dip, the Q3 purchases kept diluted shares flat from last quarter at 49.2 million despite heavy employee stock grants.
What to watch: Q4 share repurchases and diluted share count in the Q4 release. Putting more of the $1 billion authority to work would offset the planned Q4 jump in stock-based pay and hold the share count down.
🐻 Bear Case
Stock-Based Pay Nearly Doubled and Cut Reported Margin
Faster revenue growth has been lifting profitability, and operating margin excluding one-offs rose 3.2 percentage points from a year ago to 38.6% as operating expenses excluding one-offs fell by 3.1 percentage points of revenue by our math. On a GAAP basis, however, operating margin fell 1.3 percentage points from last quarter to 29.7%, missing the 32.5–34.0% range implied by the Q3 outlook by our math.
- Stock-based pay and related costs: $106.3 million in Q3, up from $53.5 million in Q2 and nearly double the $53.2–55.2 million outlook
- Selling, general and administrative expense (overhead and sales): rose 1.8 percentage points of revenue from last quarter to 13.9% by our math
- Research and development expense: fell 0.5 percentage points of revenue from last quarter to 11.7% by our math
- Q4 stock-based pay outlook: $121.0–125.0 million, up another 16% at the middle of the range
This matters because the jump in stock grants is not a one-time blip. The Q4 plan raises stock-based pay to $123 million at the middle of the range, or 9.1% of revenue by our math, up from 5.5% in Q2. Because of those grants, Q3 GAAP net income grew 5.4% from last quarter even though revenue grew 22.6%.
What to watch: Q4 stock-based pay and the Q1 2027 expense outlook in February. If stock grants stay above $120 million per quarter, shareholders absorb a permanently higher cost that the company strips out of its headline profit.
Higher-Priced Systems Still Do Not Lift Gross Margin
Management has long argued that selling complete power modules and AI server systems carries higher prices than selling simple chips. Yet GAAP gross margin — the share of sales left after the cost of making the products — printed at 55.4% in Q3, up just 0.2 percentage points from last quarter and 0.3 percentage points from a year ago. Gross margin excluding one-offs was 55.7%, up 0.1 percentage points from Q2.
That keeps gross margin pinned at the bottom of the company's 55–60% target model for a seventh straight quarter, even as revenue grew 63.1% from a year ago and Enterprise Data reached 42.1% of sales. The Q4 outlook of 55.2–55.8% GAAP (55.5–56.1% excluding one-offs) leaves it flat for an eighth quarter. Because gross margin is not rising, all of the company's profit expansion rests on keeping overhead growth below sales growth.
What to watch: Q1 2027 gross margin outlook next quarter. Another range centred near 55.5% would show that full-system modules carry the same percentage margin as the rest of the business.
Risks This Quarter Didn't Answer
Six standing risks from prior quarters either remained unresolved in the earnings release or await the webinar Q&A and the quarterly 10-Q filing.
- Internal-control weakness: the safe harbor statement again lists "the Company’s ability to timely and adequately remediate its material weakness" without giving its scope or a fix date; the 10-Q controls section will show if anything changed.
- Order-book visibility and double-ordering: the release gives no dollar backlog or ratio of new orders to shipments (book-to-bill); the webinar Q&A is the first place management typically comments on order intake.
- AI vs traditional server split: the release does not break out how much of Enterprise Data comes from AI accelerators versus server processors for a fifth quarter.
- Customer and distributor concentration: accounts receivable rose 34.3% from last quarter to $461.6 million, and the 10-Q note on contract balances will show whether a single reseller still holds 20% of receivables.
- China and trade exposure: the 10-Q geographic table will update the share of sales shipped to China against ongoing tariff and export-control risks.
- Legal expenses and GaN transition: the 10-Q will disclose quarterly legal fee changes, and the call Q&A will test whether sampling GaN chips changes management's defence of its silicon carbide products.
💲 Other KPIs
Accounts receivable — money customers owe for shipped products — rose 34.3% from last quarter and 91.1% from a year ago by our math, outpacing the 22.6% sequential revenue rise. Days of sales outstanding (the average number of days MPS takes to collect payment) rose to 35 days from 32 in Q2 and 30 a year ago, tying up more working capital.
Stock Held in warehouses rose 13.2% from last quarter and 51.3% from a year ago by our math to support higher shipments. Measured against current-quarter sales, however, days of inventory fell by 10 days from Q2 to 130 days. Measured against next quarter's planned revenue, inventory stood at 117 days, up 2 days from the revised Q2 figure.
Cash generated from operations rose 27.2% from last quarter and 21.1% from a year ago by our math. That trailed the 50.8% rise in GAAP net income from a year ago because higher receivables and inventory absorbed cash. After $453.4 million of stock buybacks, cash and short-term investments ended at $1.091 billion, down from $1.414 billion in Q2.
🔮 Guidance
New. The plan calls for $1.35 billion at the middle of the range, up 12.3% from Q3 and 79.7% from a year ago by our math. Combined with the first nine months, that puts full-year 2026 revenue on track for $4.34 billion, or 55.4% growth by our math. MPS has beaten its revenue midpoint for six straight quarters; if the five-quarter average beat of 3.6% holds, Q4 revenue would reach $1.40 billion by our math.
New. The middle of the range is $338.0 million, up 9.8% from Q3 actuals by our math, slower than the 12.3% planned revenue rise. It includes $117.2–121.2 million of stock-based pay in operating expenses (and $121.0–125.0 million in total). By our math, the revenue, gross margin and expense plans imply a Q4 GAAP operating margin of 30.5% at the middle of the range, up from 29.7% in Q3.
New. At the middle of the range ($218.8 million), operating costs excluding stock-based pay grow 6.6% from Q3 by our math, roughly half the pace of planned revenue growth. By our math, that lifts operating margin excluding one-offs to 39.6% at the middle of the range, up 1.0 percentage point from Q3.
New. Planned at $8.0 million at the middle of the range before foreign-exchange gains or losses, down from $9.3 million excluding one-offs in Q3 after the company spent $323 million of its cash pile during the third quarter.
Unchanged. Held at 15.0% for the fourth straight quarter, matching the 15.0% rate recorded in each of the first three quarters of 2026.
New. The middle of the range is 49.1 million shares, down slightly from 49.2 million in Q3 after the third-quarter buybacks and the new $500 million repurchase authority.
❓ Key Questions
Why did stock-based pay nearly double to $106 million?
Stock-based compensation jumped from $53.5 million in Q2 to $106.3 million in Q3 — almost double the $53.2–55.2 million outlook — and the Q4 plan raises it to $121–125 million. What performance triggers or new grant programmes caused this step-up?
Is the building-automation software still on track for year-end?
Last quarter chief executive Michael Hsing said hardware for the building-automation control system was finished and promised the software would be complete by the end of 2026. The Q3 release did not mention building automation; will the system ship in Q4?
What is the scope and timeline for the internal-control fix?
The safe harbor statement again flags an unremediated material weakness in internal controls without explaining what it covers. Which accounting areas are affected, and when will the company complete its remediation?
Did the ratio of new orders to shipments stay above one?
Management said in each of the last three quarters that its book-to-bill ratio was well above one, giving more than a quarter of visibility. With Q3 revenue up 23% sequentially and Q4 planned up 12%, did order intake still exceed shipments?
Why has the shift to full modules not lifted gross margin?
Revenue has grown 63% from a year ago and Enterprise Data now makes up 42% of sales, yet GAAP gross margin has stayed between 55.1% and 55.4% for seven quarters. Do complete power modules carry a lower percentage margin than individual chips?