We recently compiled a list of the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb and in this article we will discuss the billionaire’s position in Marvell Technology, Inc. (NASDAQ:MRVL).
Billionaire investor Dan Loeb’s hedge fund Third Point had a strong start to 2024 after its offshore fund posted returns of 7.8% in the first quarter chugging along with the broader market’s 10.6% gain. AI has been one of his top investing themes for some time now and the activist shareholder maintains his bullish view on the technology. In the first quarter, he initiated a position in Alphabet and also increased his position in Amazon by 22% to about $920 million.
Loeb Thinks This Company’s Capital Allocation Strategy is “Brilliant”
Loeb’s also bullish on the energy transition and one of his favorite stocks that is expected to benefit from the AI-driven electricity demand is Vistra, one of the largest independent power producers and retail electricity providers in the US. Though the power company’s core markets have experienced volatility due to weak domestic electricity demand, its “capital allocation strategy has been brilliant”, he stated in his Q1 2024 letter to shareholders, seen by Insider Monkey. In the weak demand environment for fossil fuels, The Texas-based energy group made smart moves by shutting down its unprofitable coal plants and instead buying back 33% of its shares between 2018 and 2023. Additionally, its acquisition of nuclear generation assets of Ohio-based energy company, Energy Harbor, was right on time as governments are turning to nuclear fuel sources to meet the world’s growing energy demands. Loeb expects Vistra to be a direct beneficiary of AI-driven electricity demand and is bullish on the company’s unique position of holding both renewable and fossil fuel-based assets under its belt.
Loeb’s Bullish on LSEG, and For Good Reason
Another AI play Loeb is increasingly bullish on is UK-based stock exchange and financial data company London Stock Exchange Group. The activist investor likes the company’s unique market position as a data provider that is democratizing and making financial data accessible to consumers without the use of additional third-party software. He sees London Stock Exchange Group benefitting from generative AI as information retrieval systems in financial services become more powerful. He also expects the company to develop “a powerful Research Assistant application” with Microsoft to reduce both human resources and time needed to process financial data. He thinks London Stock Exchange Group is at the forefront of capitalizing on the transition of the financial services industry “from manual data processing via clunky desktop terminals to machine-assisted data processing”.
A close up of a circuit board, its microchips creating a powerful computing system.
Our Methodology
We scanned Third Point’s Q1 portfolio and picked growth stocks from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Note: All pricing data is as of June 6.
Billionaire Investor Dan Loeb Likes This AI Hardware Play
Marvell Technology, Inc. (NASDAQ:MRVL)
Third Point’s Stake Value: $108,001,263
Number of Hedge Fund Holders: 87
Marvell Technology, Inc. (NASDAQ:MRVL) is a semiconductor company that develops and scales complex System-on-a-Chip architectures and provides data infrastructure semiconductor solutions. Marvell provides designated chips for data centers and resource-intensive AI workloads. It also operates in other end markets including carrier, enterprise networking, consumer, and automotive, among others.
Though Loeb quoted Marvell Technology, Inc. (NASDAQ:MRVL) as being among the top 5 losers of the quarter, the billionaire initiated a position worth $108 million as shown in Third Point’s latest 13F filing. Loeb’s bullish on AI and Marvell Technology, Inc. (NASDAQ:MRVL) is an AI hardware play. The company reported a disappointing quarter on May 30, with revenue declining 12.17% year over year to $1.16 billion for FQ1 2025. However, its datacenter revenue grew by 87% year over year to $816.4 million, driven by demand for its AI products. Management remains focused on AI, particularly the company’s custom AI silicon, and is guiding to an 8% sequential increase in revenue for FQ2 2025. CEO Matt Murphy said during the earnings call:
“Our custom compute AI programs are beginning to ship in the first half of this fiscal year. And we are expecting a very substantial ramp in second half of this year followed by a full year of high-volume production in fiscal 2026.”
The semiconductor company is also expecting a recovery in its other end markets as macro headwinds subside. Analysts are optimistic and hold a consensus “Buy” opinion with a median price target of $90, which implies an upside of 32% from current levels. Institutional investors are also heavily positioning themselves in this AI hardware play as the stock was a part of 87 portfolios with an aggregate stake of $4.05 billion at the close of Q1 2024, up from 53 funds in the preceding quarter with positions worth $1.80 billion.
But is this an attractive entry point? Marvell Technology, Inc. (NASDAQ:MRVL) has been struggling with profitability and has seen its net income decline by 39% and sales grow by 14% over the past 5 years. In fiscal 2025, the company is expected to stay unprofitable. The stock is currently trading at 11 times its trailing sales. For context, Broadcom is trading at 15.8 times its sales and Nvidia is trading at 38 times its sales, but they’re both more profitable than MRVL. Analysts, however, expect MRVL to grow its revenue by 28% in fiscal 2026.
We think Marvell Technology, Inc. (NASDAQ:MRVL) may have an impressive story a few quarters from now as the company grows its AI business and its macro-sensitive segments recover. If the company manages to grow its data center business, it might be able to swing to a profit and grow its top and bottom line by fiscal 2026. Marvell Technology, Inc. (NASDAQ:MRVL) is working with Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) to develop the semiconductor industry’s first technology platform for the manufacturing of 2nm chips, the latest generation of chips in the market right now. Management’s commitment to innovation and AI might be the reason why Loeb bought the stock. The activist is known for taking huge bets in troubled companies with secular growth stories.
Marvell Technology, Inc. (NASDAQ:MRVL) ranks 10th on our list. To discover Dan Loeb’s top growth stock picks, check out our free report on the 10 Best Growth Stocks to Buy According to Billionaire Dan Loeb. While we acknowledge the potential of Marvell as an AI play, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MRVL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article is originally published on Insider Monkey.