The growth in investment in artificial intelligence in the last year has been astounding!

It is predicted that the largest builders of AI infrastructure (the “hyperscalers”) will invest over $300 billion in new facilities in 2025.

This massive investment growth has helped propel chipmaker NVIDIA Corporation (NASDAQ: NVDA) to the world's largest market capitalization company.

It has also led to huge rallies in other companies that provide the components to these systems. The “picks and shovels” of AI!

Today's HX Trader idea is one of these companies that has stumbled and we think will recover.

Here is the idea…

The company is power circuit manufacturer - Monolithic Power Systems, Inc. (NASDAQ: MPWR).

We doubt you have heard of this $31 billion market capitalization company, but they are a leading provider of power chips to data centers. The company was founded in 1997 by current CEO Michael Hsing and specializes in high-end solutions.

Their leading technology position has allowed them to be NVDA's primary partner in chip installations in data centers, which has worked out well for MPWR given NVDA's growth.

Here is a table showing the profit growth (as measured by earnings per share or “EPS”) over the last decade…

Over this period, the company has grown earnings by over thirteenfold. It has also grown every year except one, and that growth has been consistently double-digit.

This is an impressive track record of growth. They have profitably taken advantage of the growth in AI and data centers.

That growth has been a strong "tailwind" for their earnings and enabled them to beat analysts' expectations for EPS consistently. Here is a table showing their reported results versus expectations over the last half-decade…

They have beaten every quarter over the last five years. The last miss was in 2019, and it was by less than—$0.01 cent.

We didn't include the entire table going back ten years, but that quarter in 2019 was their only miss over this period. The company clearly has a good handle on its operations.

When a company consistently beats numbers and takes advantage of a robust environment for its products, it will also see consistently rising earnings estimates. This metric is the most important for share price performance.

Here is a chart showing the price of MPWR stock along with the analysts’ estimates for 2025 EPS…

Similar to many technology companies, MPWR saw negative earnings revisions in the post-COVID period. Since late 2023, they have consistently moved higher, with only a slight downgrade recently.

This combination of results – earnings growth, beating numbers, and rising estimates – is a recipe for a strong stock price. Here is the chart showing MPWR's stock price over the last ten years…

MPWR has been a great stock! The shares have gone from roughly $40 to a recent high of over $900 per share. That is more than a twenty-two-fold return and blows away the stock market index returns.

Recently, though, the stock has stumbled. Here is a chart over the last couple of years, along with the relative strength index (RSI).

After a great run in the last twelve months, during which the stock almost doubled, it has been hit hard in the last few weeks.

What is happening?

The company reported at the end of October and reported another strong quarter.

The company reported revenue of $620 million, versus estimates of $600 million. It also reported earnings of $4.06 per share versus the consensus estimates of $3.97 per share. Additionally, it reiterated its Q4 revenue guidance with a constructive range.

The one concern was that their AI-related Enterprise Data (ED) segment showed a small quarter-over-quarter revenue decline. This stoked investor fears that declining pricing and content in NVDA platforms could impact the company.

This led to the stock trading off -17% that day.

The stock was hit again at the start of this week when an analyst said they had heard of technical issues with MPWR's circuits and the newest NVDA chips. This punished the stock, and it fell to a low of below $600, or down 33% from just a few weeks ago.

The company came out with a statement saying there were no issues.

We have seen similar situations like this in the past. With the maturation of the NVDA platforms, we are sure they (NVDA) will look to add more integrators. This could slow the growth at MPWR.

Given the current operating momentum and the size of the opportunity, we think this impact will not be felt for some time.

Caution may or may not be warranted, but the stock getting cut by one-third is too much.

We think this is a good opportunity to buy shares in one of the leading AI "picks and shovels" companies, and we would buy them here.