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Marvell Technology (MRVL) Soars on Transformational AWS Agreement
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Marvell Technology (NASDAQ:MRVL) is surging 22% higher heading into noontime trading after the semiconductor stock reported artificial intelligence was driving its business far higher than expected.
The chipmaker said third-quarter revenue of $1.52 billion jumped 7% from the year ago period, but it handily trounced Wall Street expectations of $1.46 billion. That generated adjusted profits of $0.43 per share, which was also ahead of analyst forecasts of $0.41 per share.
What got investors energized, however, was the news Marvell will supply Amazon (NASDAQ:AMZN) with custom AI accelerator chips for its growing data center footprint. Marvell makes custom AI chips for hyperscalers including Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Amazon.
While Nvidia (NASDAQ:NVDA) is far and away the leader in AI chips, there is a broad and growing niche for custom chips, which Marvell and a few others, such as Broadcom (NASDAQ:AVGO) have developed a specialty in.
24/7 Wall St. Insights:
- Marvell Technology‘s (MRVL) pivot to data center sales is beginning to pay off big time.
- A new, multi-year contract with Amazon Web Services for custom AI chips could be transformational for the chipmaker.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
A transformational agreement
Marvell said it signed “comprehensive multi-generational five-year agreement” for Amazon Web Services. It covers not only AI chips, but also optical chips, data center modules, and Ethernet switching solutions.
President and CEO Matthew Murphy said it is “a significant step-up in the expected volume of business” between Marvell and Amazon, and it allowed the semiconductor stock to raise its full-year outlook well beyond expectations.
Marvell expects revenue of $1.8 billion in revenue and $0.59 cents per share in adjusted earnings. That compares favorably to analyst revenue forecasts of $1.65 billion and per-share profits of $0.56.
Perfect timing for AI’s uptake
Robust AI chip demand comes at an opportune time for Marvell Technology as sales in products for telecommunications, automotive, and other sectors suffered steep declines. Non-data center business plummeted 50% from the year-ago period, dropping from $850 million in revenue down to $415 million.
Carrier infrastructure sales were down 73%, enterprise networking was down 44%, consumer was off 43%, and automotive fell 22%. Sales were up slightly sequentially, however, suggesting Marvell may have reached a bottom in those areas.
Still, as many chipmakers are discovering, it is quickly becoming a case of AI all the time. Data center product sales surged to $1.1 billion in the third quarter from $556 million last year. The segment now accounts for 73% of Marvell’s total revenue, an amazing increase from just 39% one year ago.
Marvell also makes Amazon’s Trainium chip and it is expected to start producing the online retailer’s Inferentia chip next year. AWS is using these chips to offer its customers an alternative to training their large language models on Nvidia GPUs, which are much more expensive and because of demand, more difficult to procure. Marvell is also producing Alphabet’s Axion chip for Google.
More gas in the tank
MRVL stock is up 94% in 2024 and has soared 125% over the past year. Management had forecast AI revenue would double this year and then double for several years running. It had expected to generate $1.5 billion in AI sales this year and as much as $2.5 billion by 2026, As Marvell is already running ahead of those estimates, it suggests the chipmaker could tip well over $3 billion in such sales within the next two years.
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