We came across a bullish thesis on Marvell Technology, Inc. (MRVL) on Outperforming the Market’s Substack by Simple Investing. In this article, we will summarize the bulls’ thesis on MRVL. Marvell Technology, Inc. (MRVL)’s share was trading at $115.20 as of Jan 14th. MRVL’s trailing and forward P/E were 22.15 and 42.55 respectively according to Yahoo Finance.
An overhead view of a large-scale data center with rows of servers and blinking lights.
Marvell Technology is a fabless semiconductor company that has seen a significant shift in its revenue composition, driven largely by the growth of the data center market, which now accounts for 70% of its total revenue. The rapid expansion of data centers has overshadowed the contributions from enterprise networking and carrier infrastructure, which together now make up just 15% of the company’s total revenue. Although these segments have seen a decline, there are positive signs of recovery, signaling potential growth across Marvell’s broader portfolio. A key driver of future growth is Marvell’s custom ASIC business, which began shipping in 2024 and is expected to ramp up to high-volume production in 2025. These custom silicon solutions are specifically designed to meet the needs of individual customers, providing a competitive edge in a variety of end markets. Marvell has secured substantial deals with major hyperscalers like Amazon, Google, and potentially Microsoft, who are using Marvell’s custom silicon in their cloud operations. This collaboration spans several applications, from networking to storage, and further highlights Marvell’s growing role in the cloud ecosystem.
In addition to custom ASICs, Marvell’s electro-optics solutions are a crucial part of its product portfolio. These solutions are essential for high-speed optical communication, particularly in cloud data centers and carrier networks. Marvell’s electro-optics products, such as PAM and coherent DSPs, are key to data center interconnects, positioning the company as an important player in this rapidly expanding market. The company also provides Ethernet solutions for various sectors, including automotive, enterprise, and data centers, with products such as network adapters, transceivers, and switches, which are expected to continue supporting its diversified revenue streams.
The company’s fiscal year 2023 was marked by strong performance, with a 19% sequential revenue increase and 7% year-over-year growth in its third quarter. Although gross margins were slightly lower at 60.5%, Marvell showed impressive earnings growth, with earnings per share (EPS) rising by 43% sequentially. The company’s outlook for the fourth quarter of fiscal year 2025 is also positive, with revenue guidance set at $1.8 billion, representing a 26% year-over-year increase. The data center segment, which has been a key growth driver, is expected to continue its upward trajectory with a projected growth rate of over 20% next quarter.
While the data center market remains a significant contributor to Marvell’s success, its non-data center markets, including enterprise networking, carrier infrastructure, automotive, and industrial sectors, are also beginning to show signs of recovery. Sequential growth in enterprise networking and carrier infrastructure revenues was reported at 4%, and the automotive and industrial markets saw a 9% sequential growth. These developments suggest that Marvell is well-positioned to benefit from a broader market recovery, which will further bolster its overall performance in the coming quarters.
Marvell’s competitive advantage in the custom silicon space is underscored by its broad intellectual property portfolio, strong manufacturing capabilities, and highly skilled engineering team. The company’s ability to deliver high-quality, first-pass silicon, which is successful on the first attempt, further enhances its standing against competitors like Broadcom. As the demand for cloud-optimized semiconductor solutions continues to rise, Marvell is well-equipped to meet this growing need. The company’s strategy is to expand its custom silicon capabilities, which will enable it to secure more deals with hyperscalers and further capitalize on the growing cloud market.
Looking ahead to 2025, Marvell is poised for strong performance, driven by several tailwinds. The recovery in non-data center markets, coupled with strong growth in core electro-optics products and a more substantial ramp for custom silicon, particularly due to AWS’s expected growth, positions Marvell for continued success. The company’s revenue and earnings per share projections have been revised upwards, with revenue estimates for 2024 increasing by 2% and outer-year forecasts raised by 8%. EPS estimates for 2024 have been lifted by 2%, while outer-year EPS forecasts have seen an increase of 6% to 8%. Marvell’s intrinsic value, based on a discounted cash flow model, has risen to $113, offering a 20% margin of safety from its current price of $90. With price targets of $119 for the next year and $151 for the next three years, there is substantial potential upside based on Marvell’s financial outlook. The consistent P/E multiple, along with strong business momentum, makes Marvell an attractive investment opportunity, with the potential for both earnings beats and multiple expansions over the next several years.
Marvell Technology, Inc. (MRVL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 70 hedge fund portfolios held MRVL at the end of the third quarter which was 74 in the previous quarter. While we acknowledge the risk and potential of MRVL as an investment, 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 was originally published at Insider Monkey.