In a market that has been defined by surging prices for stocks connected to AI, Marvell Technology (NASDAQ:MRVL) has been the rare case of a tech stock with AI exposure that has retreated considerably over the last year. Shares of MRVL are down by over 36 percent in the last 12 months, despite considerable revenue growth, improvements in profitability and a promising position as a provider of equipment for data centers. Could Marvell technology be the next big AI winner, or will the stock continue to slide?
Why Marvell Could Be a Good Play on AI
While other businesses are soaring on demand for GPUs or memory chips, Marvell addresses the need for networking infrastructure in data centers. Marvell’s products include network switches, interconnects and custom networking infrastructure. Marvell has also developed its own architecture to enhance the performance of high-bandwidth memory chips, a critical component for AI computing.
Marvell is also coming into its own as a maker of ASIC processors, application-specific chips that are increasingly being seen as an alternative to the general-purpose GPUs that have mostly driven AI up to this point. ASICs offer superior performance and efficiency for specific tasks, a fact that is expected to drive shipments of ASICs for AI servers to triple by 2027. By 2028, Marvell expects its total addressable market to rise to $75 billion as investment in data center infrastructure continues.
Marvell has recently further bolstered its AI thesis by acquiring Celestial AI, a maker of optical interconnect technology designed specifically to meet the high-bandwidth needs of large data centers. With the Celestial acquisition, Marvell has added a major component to its long-term strategy of becoming a go-to provider of data center networking and interconnect equipment. Strategic acquisitions such as this could be extremely helpful in Marvell’s efforts to capitalize on the AI boom.
How AI Potential Is Translating to Performance
Despite the considerable slide in its share prices over the last year, Marvell has turned in some very positive financial results. In Q3, for example, the business reported revenues of $2.075 billion, a record that represented a 37 percent increase from the year-ago quarter. Marvell has also staged an impressive rally in profitability, going from a GAAP loss of ($0.78) per share in Q3 of 2024 to earnings of $2.20 per share in last year’s Q3. On a non-GAAP basis, Marvell delivered earnings of $0.76 per share.
Management expects Q4’s revenues to be even more impressive at $2.200 billion. While GAAP earnings are expected to retreat to $0.36 per share, non-GAAP earnings are expected to rise to $0.79 per share. Gross margin, meanwhile, is expected to fall in the range of 51.1 percent to 52.1 percent.
The real story for Marvell, however, is likely to be its runway for long-term growth. As noted above, the business could have a massive opportunity as data centers continue to be built at a blistering pace. Over the next five years, analysts expect this opportunity to translate to annualized earnings growth of over 46 percent.
Marvell’s Valuation Is Reasonable?
Unlike many potentially high-growth AI stocks, MRVL is trading at the relatively modest P/E ratio of 25.8. While this low premium to earnings is somewhat offset by the stock’s price-to-sales ratio of 8.3 and price-to-operating-cash-flow ratio of 40.8, Marvell Technology still appears to be significantly cheaper than many tech stocks connected to artificial intelligence at first glance.
Analysts also tend to see MRVL as substantially undervalued, with the current consensus price target of $116.52 implying an upside of more than 57 percent from the most recent price of $74.21. It’s worth noting, however, that the spread of analyst price targets for the stock is very wide, ranging from a low of $90 to a high of $156, implying returns of anywhere from about -22 percent on the low end to about 110 percent on the high end. Even with such a large range of forecasts, analyst ratings lean heavily toward buy, with 26 standing buy ratings and only 12 hold ratings. As of the time of this writing, Marvell stock has no standing sell ratings.
Is There a Risk That Data Center Spending Will Slow?
Right now, many leading AI stocks are facing significant downward pressure as the market rethinks the long-term value of artificial intelligence and questions the amount of cash that large tech businesses are deploying to build infrastructure for it. In addition to a cooling of the hype surrounding AI, the current selloff is also being fueled by growing questions about the short window for data centers to generate profits due to their rapid depreciation.
Despite market worries, though, there’s little evidence that spending on AI will deteriorate anytime soon. Amazon, Meta, Alphabet and Microsoft alone are expected to spend about $650 billion on AI infrastructure this year, to say nothing of the sums that will be spent by other AI businesses and cloud providers. In this environment, it’s quite possible that Marvell and other businesses that provide the hardware needed for data centers will keep delivering strong results.
Will MarvelL be a Winner in AI?
One major risk that Marvell could still carry is its lack of a strong moat. When it comes to ASIC chips and data center networking, Marvell is competing with the much larger Broadcom. Marvell itself noted in 2024 that it only had an addressable market share of about 10 percent. In the high-growth ASIC market, Broadcom is expected to secure a market share of about 60 percent by next year. Though that still leaves room for smaller players, Marvell doesn’t seem to have a clear path to a dominant market position.
Even so, Marvell’s comparatively low valuation for an AI stock and growth runway could still make it an attractive buy. With data center spending likely to remain at very high levels for multiple years, businesses like Marvell that can take advantage of it will likely be in good positions to generate strong earnings growth. Moreover, AI data centers tend to have shorter lifespans than traditional data centers due to the greater demand placed on processors and the fast pace at which older hardware is expected to become obsolete. This fact could give businesses like Marvell a long-term boost by giving them the opportunity to replace hardware on a relatively short cycle.
Taking Marvell’s pros and cons into account, the stock could be a moderate buy while it remains at reasonable prices. While there are some decently large risks associated with MRVL stock, investors who are bullish on AI may find it worth looking at as a relatively cheap play on the next generation of AI data centers.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.