The conversation in the semiconductor space almost entirely revolves around Nvidia (NASDAQ:NVDA) right now, and for good reason. The high-performance chip maker has continued to provide the best growth in this sector, and remains the pivotal option for investors looking to gain exposure to the incredible growth potential AI technologies bring to the fore.
However, Marvell Technology (NASDAQ:MRVL) is a custom chip designer I think investors are starting to catch on to in terms of its growth potential in the hyper-growth AI chip space. The company continues to see strong demand for its custom chip production process for key mega-cap tech companies, and could certainly continue to see strong growth moving forward. I’m going to get into the company’s recent numbers, and why this stock is up more than 20% over the past week. But there’s certainly a compelling story here.
Let’s dive into why Marvell could be the hottest AI stock on the market right now, and where this stock could be headed from here.
Key Points About This Article:
- Marvell is a top chip maker that is taking the market by storm, surging after reporting stellar Q3 earnings.
- Here’s what to make of the company’s recent move, and where this stock could be headed from here (assuming these tailwinds can continue).
- 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.
Company Background
Even that it’s been a while since I’ve looked at Marvell, I thought I’d do a recap of the company and what it focuses on for my sake and that of the readers.
Founded in 1995 by Sehat Sutardja, Weili Dai, and Pantas Sutardja, Marvell is a leading fabless semiconductor company providing a range of infrastructure solutions as well, which support various end markets from data centers to network edges.
Importantly, Marvell’s product portfolio includes advanced System-on-a-Chip (SoC) architectures, Ethernet solutions, and storage controllers, catering to various sectors such as automotive, enterprise networking, and cloud computing end markets. The company has continued to expand its networking capabilities and verticals within the data center market, but its crown jewel is really the company’s ability to produce custom chips for a range of companies looking to do an “end around” on the more expensive Nvidia and AMD chips.
In this market which is clearly demanding agility and custom AI products, Marvell’s unique infrastructure clearly positions the company well to take market share from the current incumbents, who already have a long backlog for their chips as it is. Companies like Marvell that can produce chips on-demand for clients, and adjust their development processes to fit the needs of their clients in a more targeted way, are gaining attention among investors looking at which companies are going to be able to fill the current (fast-growing) demand gap in the marketplace.
Excellent Q3 Results
This brings us to the company’s recent Q3 earnings results, which were, by all accounts, stellar.
Marvell brought in $1.516 billion in Q3 net revenue, a number which grew 7% year-over-year, and was driven by strong sales of the company’s AI chips. Importantly, this quarterly number reflected 19% sequential quarter-over-quarter growth, allowing the company to extend its forward guidance to another 19% quarter-over-quarter number for Q4. If Marvell can hit this target, the stock will certainly have more upside ahead. That’s mainly why the stock popped more than 20% on these rather incredible results.
Sales of the company’s custom AI chips and demand from data centers appear to be robust catalysts that have the potential to drive future margin expansion. And while th company did provide a CAAP diluted loss per share of $0.78, this was better than what analysts expected, with many suggesting the company could be profitable much sooner than expected if this growth continues.
The vast majority of upside in MRVL stock comes from investors pricing in much higher margins over time as the company’s custom AI chips catch on with a broader clientele base. With new chips rolling out for Microsoft next year, and strong demand for the company’s chips currently being sold to the likes of Amazon and other mega-cap tech companies, this is a stock that could certainly take market share (and produce much higher margins) over time in this competitive space. Thus, it’s a company investors are trying to get ahead of the curve on, and invest in today.
Where Is Marvell Headed From Here?
Marvell Technology continues to be among the best-performing stocks in the market, and while this stock is up “only” 90% year-to-date (relative to a move of nearly 190% for rival Nvidia), there are some in the market who may believe that that Marvell could actually be the better pick here.
Some of this has to do with the company’s relative size (a valuation of $100 billion is significant, but pales in comparison to Nvidia’s market cap of nearly $3.5 trillion). So, if the company’s AI chip sales can continue to grow at breakneck speed (sales to specific clients are hovering around the triple-digit level and have surpassed $1 billion), this valuation could certainly make sense over time. The question is just how high of a premium multiple investors will be willing to pay, considering MRVL stock currently trades at around 18-times sales and 42-times forward earnings.
Now, using Nvidia as a guidepost, this valuation could certainly be considered cheap in hindsight, if the company can continue to fire on all cylinders. Analysts continue to pump out buy ratings on Marvell, noting the company’s growth in AI chips, data center silicon, as well as other drivers from cloud, 5G and advanced auto markets being key areas to focus on. If the company can grow its AI-related revenue from around $1.5 billion this year to more than $2.5 billion next year (as expected), this is a stock that could be valued much higher over time.
Personally, I think Marvell is still a show-me story right now, but it’s also a company that’s ticked every box thus far in proving that its AI tailwinds are real. Until something changes, this is a stock that I think is worth owning here.
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