Marvell Earnings: AI Accelerator Upside Beats Forecasts

Key Morningstar Metrics for Marvell Technology

• Fair Value Estimate: $90.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Marvell Technology’s Earnings

We’ve raised our fair value estimate for Marvell Technology MRVL to $90 per share from $75, with a higher data center revenue forecast for the firm. Marvell capitalizes on a massive artificial intelligence chip opportunity with a burgeoning custom accelerator portfolio and a dominant optical chip position. The firm holds Amazon.com AMZN as a marquee cloud customer across its AI chip offerings, which supports our expectation for intense growth over the next five years.

We also see an upside to Marvell’s cyclically depressed enterprise and carrier end markets over the next few years as customer demand recovers. We credit data center and AI success for Marvell to strong chip design and a focused long-term investment strategy, which underpin our narrow moat and Exemplary Capital Allocation Rating.

Marvell shares are expensive after a 10% after-hours rise in response to strong guidance. We have a bullish forecast that assumes the firm will beat its AI revenue targets presented in April 2024. We forecast nearly 40% data center revenue growth through fiscal 2029, including 75% annual growth for AI revenue over the same period. At the current share price, we believe investors should assume even higher growth.

Marvell’s data center business drove strong October-quarter results and January-quarter guidance well above our model. Data center sales are now almost 75% of total revenue; they rose 98% year over year in the October quarter (25% sequentially). We expect similar sequential growth in the January quarter. Marvell enjoys robust demand for its custom accelerators, used for AI training and inference, which go to large cloud customers like Amazon. We believe the firm’s optical chips also enjoy strong growth across a broader base of cloud customers, and Marvell supplements these revenue streams with other data center chips for the likes of Alphabet GOOGL/GOOG. We expect strong data center growth to endure in the long term with a widening customer base and rising AI chip demand.