“It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
- George Soros
We’ve always valued the wisdom of George Soros and have a copy of the quote seen at the beginning of this article displayed in our office. But over the past five years, we’ve begun to quibble with this quote. We think there is a third option: how much money you make when markets are making even more. Over the past five years, Nintai Investments has generated solid returns for our investors. In fact, we have outperformed our proxies—the Russell Mid-Cap Growth Index and the Russell 2000. That said, we have significantly underperformed the S&P 500 over the past 1, 3, 5, and 10 years.
Monolithic Power Systems: Good, But Not Good Enough
We have owned Monolithic Power Systems (MPWR) since 2021 in most of our portfolios. During that time, the company has been performing exceptionally well. As shown below, growth and profitability have been impressive over one-year, five-year, and ten-year periods.
- George Soros
We’ve always valued the wisdom of George Soros and have a copy of the quote seen at the beginning of this article displayed in our office. But over the past five years, we’ve begun to quibble with this quote. We think there is a third option: how much money you make when markets are making even more. Over the past five years, Nintai Investments has generated solid returns for our investors. In fact, we have outperformed our proxies—the Russell Mid-Cap Growth Index and the Russell 2000. That said, we have significantly underperformed the S&P 500 over the past 1, 3, 5, and 10 years.
Monolithic Power Systems: Good, But Not Good Enough
We have owned Monolithic Power Systems (MPWR) since 2021 in most of our portfolios. During that time, the company has been performing exceptionally well. As shown below, growth and profitability have been impressive over one-year, five-year, and ten-year periods.
On October 30th, the company reported its third-quarter results. Third-quarter revenue came in above guidance, rising 19% year over year to $737 million. Fourth-quarter guidance was positive, implying 19% year-over-year revenue growth to a midpoint of $740 million. Here was Morningstar’s take on the quarter and the company’s 2026 outlook.
“MPS' strong momentum is continuing, with widely diversified growth across its served markets. We like MPWR’s' ability to win new customers, move up the value chain in key markets, and take market share. Artificial intelligence and automotive growth continue to be bright spots.
From this review, you would consider the company’s quarterly report and 2026 outlook exemplary. Indeed, few companies in today’s market have achieved such levels of profitability, growth, and capital allocation.
For all of this, the day after announcing earnings, the stock dropped by 12% by midday. What in the world would cause the markets to slash the stock price by double digits after such a report?
Two words: artificial intelligence (AI). Market participants didn’t see enough discussion (and market growth) related to AI. Management reported that, in Morningstar’s words, “AI revenue was a headwind in the first half of the year, with lumpy order patterns and MPS ceding some of its dominant share.” We’ve now reached a stage in a market, driven by AI, where a company with double-digit growth foreseeable through 2035 and free cash flow estimated to grow by 18-20% over the same period sees a double-digit price decline because AI revenue was “lumpy.”
Conclusions
We are in a market that challenges many of the values we've upheld for the past few decades. We've always focused on companies that generate high returns on capital, strong free cash flow margins, little or no debt, and trustworthy management. We have always preferred to let the company and its management handle the heavy lifting over time. Eventually, the returns will follow. Over the past five years, we've seen two market segments—artificial intelligence and cryptocurrencies—drive most of the market’s outperformance. Don’t get me wrong—our portfolios have performed well, delivering roughly 10% returns over the past decade. However, these returns have simply not kept pace with assets that either lack obvious value (crypto) or haven't produced significant free cash flow yet (AI). Ultimately, we are unlikely to invest in either market category. We believe companies like Monolithic Power Systems are excellent organizations that will yield strong long-term returns. AI and crypto? We’re not so sure. But one thing we are confident about is that we will not risk our investors’ hard-earned dollars on such hollow ventures.
As always, we look forward to your thoughts and comments.
DISCLOSURE: We hold Monolithic Power Systems in our current investment partners’ and personal portfolios.
“MPS' strong momentum is continuing, with widely diversified growth across its served markets. We like MPWR’s' ability to win new customers, move up the value chain in key markets, and take market share. Artificial intelligence and automotive growth continue to be bright spots.
- AI revenue was a headwind in the first half of the year, with lumpy order patterns and MPS ceding some of its dominant share. We like that this business is back to growth and anticipate further expansion with the firm qualifying into custom AI accelerators at new customers like Google.
- MPS' march up the value chain in automotive is impressive. The firm won another advanced driver-assistance system design in the quarter. We expect ADAS strength to continue and for MPS to layer in battery management and electric vehicle drivetrain solutions longer-term.
- We expect another year of 20% sales growth in 2026 and see double-digit growth enduring into the long term. We expect data center revenue to grow most rapidly but expect the firm's attractive end-market diversity to prove durable behind widely strong growth across its markets.
From this review, you would consider the company’s quarterly report and 2026 outlook exemplary. Indeed, few companies in today’s market have achieved such levels of profitability, growth, and capital allocation.
For all of this, the day after announcing earnings, the stock dropped by 12% by midday. What in the world would cause the markets to slash the stock price by double digits after such a report?
Two words: artificial intelligence (AI). Market participants didn’t see enough discussion (and market growth) related to AI. Management reported that, in Morningstar’s words, “AI revenue was a headwind in the first half of the year, with lumpy order patterns and MPS ceding some of its dominant share.” We’ve now reached a stage in a market, driven by AI, where a company with double-digit growth foreseeable through 2035 and free cash flow estimated to grow by 18-20% over the same period sees a double-digit price decline because AI revenue was “lumpy.”
Conclusions
We are in a market that challenges many of the values we've upheld for the past few decades. We've always focused on companies that generate high returns on capital, strong free cash flow margins, little or no debt, and trustworthy management. We have always preferred to let the company and its management handle the heavy lifting over time. Eventually, the returns will follow. Over the past five years, we've seen two market segments—artificial intelligence and cryptocurrencies—drive most of the market’s outperformance. Don’t get me wrong—our portfolios have performed well, delivering roughly 10% returns over the past decade. However, these returns have simply not kept pace with assets that either lack obvious value (crypto) or haven't produced significant free cash flow yet (AI). Ultimately, we are unlikely to invest in either market category. We believe companies like Monolithic Power Systems are excellent organizations that will yield strong long-term returns. AI and crypto? We’re not so sure. But one thing we are confident about is that we will not risk our investors’ hard-earned dollars on such hollow ventures.
As always, we look forward to your thoughts and comments.
DISCLOSURE: We hold Monolithic Power Systems in our current investment partners’ and personal portfolios.
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