Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
The chipmaker sank following its latest quarterly report, but investors should not miss the silver linings.
The semiconductor sector has done well in 2024, as evidenced by the 23% gains clocked by the PHLX Semiconductor Sector index this year. This rally also had a positive effect on shares of Marvell Technology (MRVL -0.16%).
Then Marvell’s rally came to a screeching halt with the May 30 release of its fiscal 2025 first-quarter results (for the three months ended May 4, 2024). The stock price fell 10% after the company released a mixed quarterly report.
A closer look at Marvell’s latest results indicates that its recent pullback could offer a buying opportunity for savvy investors. Let’s look at the reasons why.
Marvell, whose chips are deployed in data centers, enterprise networks, carrier infrastructure, consumer devices, and automotive and industrial applications, delivered fiscal Q1 revenue of $1.16 billion, slightly below the $1.16 billion consensus estimate. The company’s non-GAAP earnings of $0.24 per share matched the Wall Street estimate.
Marvell’s revenue fell 12% year over year, while its earnings contracted by 23%. The year-over-year decline in Marvell’s numbers was a result of the weakness in the enterprise networking, carrier infrastructure, consumer, and automotive/industrial markets. All of these segments declined substantially from the year-ago period because of the ongoing inventory correction in these markets due to soft demand.
The good part is that Marvell forecasts a recovery in these markets in the second half of the year as inventory levels normalize and customers start placing orders for new chips. Marvell should be able to return to growth once these four segments, which produce 30% of its total revenue, start normalizing and complement the outstanding growth that its data center business is delivering.
The data center business produced 70% of Marvell’s top line last quarter. The segment’s revenue shot up 87% year over year to a record $816 million, driven by the growing demand for its custom artificial intelligence (AI) chips. The good part is that Marvell’s AI business is likely to get better, with CEO Matt Murphy pointing out on the latest earnings conference call:
Our custom compute AI programs are beginning to ship in the first half of this fiscal year. And we are expecting a very substantial ramp in [the] second half of this year followed by a full year of high-volume production in fiscal 2026.
Marvell expects to finish the fiscal year with at least $1.5 billion in AI revenue. Analysts forecast $5.4 billion in fiscal 2025 revenue from Marvell, which would be a drop of 2% from the previous year. However, the company’s AI revenue estimate indicates that this fast-growing technology is set to account for 28% of Marvell’s top line in the current fiscal year.
That would be a big jump over the 10% revenue that Marvell got from selling AI chips in the previous fiscal year, which also means that its revenue from sales of AI chips could triple year over year (Marvell’s fiscal 2024 top line stood at $5.5 billion). Even better, Marvell management is confident that AI will remain a long-term growth driver for the company.
The company is winning new business for its custom AI chips and management is confident that it will continue to gain more share of this market in the future. Marvell estimates that the revenue opportunity in custom AI chips could jump from $7 billion last year to more than $40 billion in 2028 at a compound annual growth rate (CAGR) of 45%.
As a result, Marvell sees its total addressable opportunity in the overall data center market increasing from $21 billion in 2023 to $75 billion in 2028. That growing opportunity explains why Marvell’s revenue guidance of $1.25 billion for the current quarter will result in a smaller year-over-year decline. It is also worth noting that the fiscal Q2 revenue guidance is better than consensus estimates of $1.22 billion.
What’s more, the impressive growth in Marvell’s data center business and the bright prospects in this segment indicate why analysts expect its revenue to start growing at a healthy pace in the next fiscal year.
MRVL Revenue Estimates for Current Fiscal Year data by YCharts
So, AI is set to become a solid catalyst for Marvell Technology and lift the company’s growth nicely in the future. That’s why it may be a good idea for investors to use the pullback in this semiconductor stock as a buying opportunity, as Marvell’s AI-fueled growth could help it outperform Wall Street’s expectations in the future and deliver healthy gains to investors.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
© 1995 – 2024 The Motley Fool. All rights reserved.
Market data powered by Xignite and Polygon.io.
