MPS posted record Q2 2026 revenue of $980.6M (+47.6% YoY) as AI/server power sales in Enterprise Data rose 164%, lifting GAAP EPS 85.8% to $5.22 on operating leverage with gross margin flat at 55.2%.
Revenue
$981M
+47.6% YoY
Net income
$257M
+90.6% YoY
Diluted EPS
$5.22
+85.8% YoY
Operating margin
31.0%
AI server power drove a record quarter: revenue up 47.6%, GAAP EPS up 85.8%
Monolithic Power Systems (MPS) designs chips that convert and regulate electrical power inside electronics. It outsources the manufacturing ("fabless"). In the quarter ended June 30, 2026 it reported record revenue of $980.6 million, up 47.6% from $664.6 million a year earlier and up 21.9% from Q1 2026. GAAP net income nearly doubled to $257.3 million ($5.22 per diluted share, versus $2.81).
Most of the growth came from one place. Revenue from the Enterprise Data end market, which is power management for AI accelerators and servers, rose $236.6 million to $380.6 million (+164.3%). That single market accounts for about 75% of the company's $316.1 million year-over-year revenue increase. The 10-Q attributes it "primarily" to "higher sales of power management solutions for artificial intelligence ('AI') and server applications." Communications (power for optical modules and network switches, also mostly data-center gear) added another $57.7 million. Together the two explain about 93% of the growth.
Key figures
Metric
Q2 2026
Q2 2025
YoY Change
Revenue
$980.6M
$664.6M
+47.6%
Gross margin (GAAP)
55.2%
55.1%
+0.1 pts
Operating income (GAAP)
$303.9M
$164.8M
+84.4%
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Source: Q2 2026 Form 10-Q and the Q2'26 earnings commentary (Exhibit 99.1, 8-K filed July 30, 2026). Non-GAAP figures are the company's own. They exclude stock-based compensation, amortization of acquired intangibles and deferred-compensation plan effects.
Revenue by end market
End market
Q2 2026
Q2 2025
YoY
Share of Q2 2026 revenue
Enterprise Data
$380.6M
$144.0M
+164.3%
38.8%
Storage & Computing
$199.8M
$195.3M
+2.3%
20.4%
Automotive
$157.1M
$145.1M
+8.2%
16.0%
Communications
$131.5M
$73.8M
+78.3%
13.4%
Consumer
$56.8M
$59.7M
-4.8%
5.8%
Industrial
$54.8M
$46.7M
+17.3%
5.6%
Total
$980.6M
$664.6M
+47.6%
100%
Without Enterprise Data and Communications, the other four markets grew from $446.8 million to $468.5 million, about +4.9%. That is a low-single-digit business: Automotive grew 8.2% on infotainment and lighting sales, Industrial grew 17.3% from a small base, Storage & Computing was nearly flat, and Consumer shrank. The headline 47.6% is mostly a data-center story. The rest of the portfolio is diversified, but it is not what moved the number.
Why profit grew almost twice as fast as revenue
Gross margin did not expand. Gross margin is the share of revenue left after the cost of making the chips. It was 55.2%, essentially the same as a year ago (55.1%) and Q1 (55.3%). The 10-Q says the $141.0 million rise in cost of revenue was "primarily driven by higher shipment volume and product mix." The mix shift toward AI power modules raised average selling prices (the 10-Q notes power solutions "generally carry higher average selling prices than discrete ICs"). It did not raise the margin percentage. So the extra profit did not come from better pricing per dollar sold.
It came from operating leverage. Operating leverage means revenue grew much faster than the fixed costs of running the company. Total operating expenses rose only 17.8% ($201.3M to $237.2M) while revenue rose 47.6%:
R&D rose $22.3 million to $118.6 million, but fell from 14.5% to 12.1% of revenue. The increase was mainly $11.2 million more cash compensation and $6.6 million more new-product development spending.
SG&A (selling, general and administrative) rose $13.6 million to $118.6 million, falling from 15.8% to 12.1% of revenue. Behind the increase: $11.5 million more cash compensation and $5.7 million more legal expense, partly offset by a $6.8 million drop in stock-based compensation.
The result is that GAAP operating margin (operating income as a share of revenue, before interest and tax) rose 6.2 points to 31.0%.
Why GAAP EPS grew faster than non-GAAP EPS. GAAP EPS rose 85.8% and non-GAAP EPS rose 54.4%. The gap narrowed because of three items that sit below revenue:
Lower stock-based compensation. Total stock-based compensation fell to $53.5 million from $60.3 million. MPS pays employees heavily in stock, and non-GAAP excludes that cost, so a smaller charge lifts GAAP results but leaves non-GAAP results unchanged.
A lower tax rate. The GAAP effective tax rate fell to 20.0% from 23.7%. The 10-Q attributes this to "higher non-deductible stock-based compensation reported in the periods in 2025 than in 2026." Non-GAAP assumes a flat 15% rate, so it gets no such benefit.
Other income. Other income rose to $17.8 million from $12.2 million. $3.4 million of the increase came from gains on deferred-compensation plan investments. That is a market-driven item and is offset in operating expense, so it is not a recurring earnings source.
Non-GAAP EPS growth of 54.4% is the cleaner read of the operating business. Some of the 85.8% GAAP figure comes from a smaller stock-compensation charge and a tax-rate comparison that will not repeat indefinitely.
Takeaway: MPS's growth this quarter is concentrated, not broad. AI/server power (Enterprise Data) produced about three-quarters of the $316 million revenue increase and is now 38.8% of sales, up from 21.7% a year ago. The rest of the business grew about 5%. The margin expansion came from spreading a slower-growing cost base over much more revenue, not from higher gross margins. Earnings now depend on the AI server build-out far more than a year ago.
Cash flow and balance sheet
Cash conversion lagged earnings. Q2 operating cash flow was $227.9 million, lower than $237.6 million a year earlier even though net income nearly doubled. For the first half, operating cash flow fell $15.9 million to $478.2 million, which the 10-Q attributes to "an overall increase in working capital needs." Accounts receivable (money customers owe) rose to $343.6 million from $194.8 million a year ago, and days of sales outstanding rose to 32 from 27. Inventory grew to $675.8 million from $490.6 million, although days of inventory improved to 140 from 150 because sales grew faster.
Capital spending is rising. First-half purchases of property and equipment were $153.3 million, versus $88.5 million a year earlier. This is consistent with management's statement that it has "extended our capacity goal significantly beyond $6B" of annual revenue capacity.
Shareholder returns. The quarterly dividend is $2.00 per share, up from $1.56. First-half dividend payments were $179.5 million. Buybacks were minimal ($4.0 million in Q2). In July the board added $500 million to the repurchase authorization, bringing the total to $1 billion. Cash and short-term investments were $1,413.8 million, and there is no debt on the balance sheet.
Distributor concentration. 88% of sales went through distributors, up from 83%. One distributor ("Distributor A") accounted for 28% of revenue, up from 25%.
Unremediated control weakness. The 10-Q reports that a material weakness in internal control over deferred income tax accounting, first found at FY2025 year-end, "was not remediated as of June 30, 2026." As a result, management concluded disclosure controls were not effective. The filing is signed by an Interim CFO. Management states the financial statements are still fairly presented. The weakness is in tax accounting, not revenue recognition, but it is worth tracking until it is closed.
Outlook
Management guided Q3 2026 (ending September 30) to:
Revenue of $1,140–1,160 million. At the midpoint that is about 17% above Q2's $980.6 million, and it would be the first quarter above $1 billion.
GAAP gross margin of 55.2–55.8% (non-GAAP 55.4–56.0%), i.e. flat.
Non-GAAP operating expenses of $201.2–205.2 million, up from $177.6 million in Q2.
A non-GAAP tax rate of 15% and 49.1–49.5 million diluted shares.
By our arithmetic from the guidance midpoints (not a company figure), non-GAAP operating margin would reach about 38%, slightly above Q2's 37.5%. Operating expenses are expected to grow about 14% sequentially against about 17% revenue growth, so the cost leverage continues but more slowly.
Management also pointed to new product areas: initial orders for high-speed DDR5 memory components, which it expects to widen its addressable market next year, and first samples of high-voltage AC-to-DC products for 800V data-center power architectures. Both follow the AI data-center theme into more parts of the server power chain. They would add to data-center dependence rather than reduce it.
Our read. In the near term, results depend on AI server demand staying strong. Guidance implies another large sequential step-up, and management describes "strong, broad-based ordering patterns" in Enterprise Data. The risks follow from the same concentration. A pause in AI accelerator orders would hit the segment that drove 75% of growth, and the other markets are growing only about 5%. Flat gross margins leave less room to absorb price pressure. Receivables, inventory and capex are all rising, which means cash flow is trailing earnings. We would watch three things in Q3: whether Enterprise Data keeps growing sequentially, whether operating cash flow recovers toward net income, and whether the tax-control weakness is closed.