Why Is Marvell Stock Up?

Semiconductor and data infrastructure company Marvell Technology (NASDAQ:MRVL) absolutely trounced the market last year by a factor of over 3x, delivering a trailing 12-month return of almost 94%.

While the stock was rising gradually all year, the company’s shares soared in early December and finished the year extremely strong.

Why are Marvell shares rising, and can the stock keep delivering strong returns as we enter 2025?

Why Is Marvell Stock Up?

The catalyst for Marvell’s stock rise last month was mostly due to the release of its Q3 earnings report, whereby revenues grew by 7% year-over-year and 19% sequentially to $1.52 billion.

By far the largest driver of this increase was Marvell’s data center sales, a fast-growing category in which the company is currently distinguishing itself. Data center revenues rose 98% compared to the year-ago quarter and now make up about 73% of the company’s total sales.

On an adjusted basis, the company reported earnings of $0.43 per share. GAAP profitability, however, remained elusive. Marvell lost $676.3 million on a GAAP basis, accelerating a trend of losses that has continued since early 2023.

The management team seems to believe a turnaround is in the offing. In Q4, they expect to report to shareholders year-over-year revenue growth of 26% and adjusted earnings of $0.59 per share. Better yet, they forecast a path to profitability with $0.16 expected as the midpoint for earnings per share on a GAAP basis.

On the technology front, there have been some reasons to get excited in recent weeks. For one, the top brass revealed in early December that the rank and file had made significant strides in new architecture for optimizing computing and memory density for AI accelerators. With new developments like this one and the strength of its data center business, Marvell appears to be taking full advantage of the current opportunity in building AI infrastructure.

A final piece of good news from Marvell as it ended 2024 was cementing its partnership with Amazon to help the eCommerce and cloud computing giant further develop its AI capabilities. Under the new agreement, Marvell will supply custom semiconductors and other hardware to Amazon’s AWS business over the next five years.

With Amazon emerging as a leading AI developer, this partnership may very well lead to significant value accrual to Marvell as its business grows over the next half-decade.

Is There Still Value in Marvell Technology?

One of the main concerns investors may find with Marvell is its very high pricing and elevated multiples in light of the fact that it is still losing money.

At the moment, MRVL trades at 18.7x sales and 7.5x book value. Even with a path to GAAP profitability in upcoming quarters, these figures seem to be a bit too high for some value investors to stomach.

It’s worth noting, though, that they aren’t quite as exorbitant when compared to other high-growth semiconductor companies.

What Are the Risks and Rewards in MRVL?

In addition to Marvell’s rather high valuation, there are a few other concerns that show up in the company’s performance. First and foremost is the fact that the strong performance of the data center segment appears to be covering a significant downturn in the company’s other business categories.

Enterprise networking, carrier infrastructure, consumer and industrial revenues fell by 44%, 73%, 43% and 22%, respectively, in Q3. Although spending on data centers is expected to stay strong in 2025, it’s a bit concerning that Marvell’s entire performance now rides so heavily on just one part of its business while the others are flagging so badly.

On the reward side of the equation, analysts don’t see all that much upside left in MRVL in the near future. The current average price target based on 26 analyst forecasts is $121.55, a scant 4.6% above where Marvell is already trading. Despite this, the stock does enjoy a consensus buy rating from the analysts who cover it.

Investors may also want to pay attention to the buying and selling institutional investors have done in MRVL recently, as institutional transactions have been weighted strongly toward selling over the last six months. During that period, institutional investors have sold over $100 billion worth of the stock and bought only around $40 billion. Even with Q3’s relatively solid performance taken into account, MRVL seems to have somewhat fallen out of favor on Wall Street.

Returning to the company’s valuation, Marvell’s high multiples could set it up for a fall if management fails to deliver on its forward guidance. Just as the stock climbed on better-than-expected performance in Q3, it could see a reversal if the company delivers any kind of lackluster results in the upcoming quarters.

Is Marvell a Buy Now?

Marvell Technology’s massive appreciation over the last year makes a good deal of sense given the company’s trajectory. With further revenue growth and GAAP profitability on the horizon as Marvell takes advantage of AI opportunities, it’s far from surprising that the stock has been bid up significantly over the last 12 months.

This may, however, present a problem for new investors. Marvell’s business is performing well, but the rapid increase of its share prices may have made it too expensive for new shareholders to find significant upside in. Even with ongoing improvements and the strength of the AI data center market, Marvell looks fairly expensive.

Investors who are looking for long-term plays on AI semiconductors outside of majors like NVIDIA and AMD might still find something to like in Marvell. If the company can keep its revenues growing quickly, it may be able to outgrow its seemingly high price-to-sales ratio. Likewise, Marvell’s earnings could grow fairly quickly once it achieves profitability, as semiconductor companies tend to maintain high net margins.

All told, MRVL may be a decent hold, but it’s probably a bit too risky to buy at today’s prices. If the company can deliver on its growth promises and reach GAAP profitability as expected next quarter, the stock may have significant upside. Right now, however, its high price probably makes it a bit too vulnerable to downturns if it delivers less-than-ideal results anytime in the near future.

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