Nvidia (NVDA 0.76%) is reaping the rewards of the artificial intelligence (AI) boom thanks to its solid position in the graphics processing unit (GPU) market, as the demand for these chips has skyrocketed because of the role they play in training AI models.
The graphics specialist delivered terrific guidance when it released its fiscal 2024 first-quarter results (for the three months ended April 30) on May 24. The company expects its revenue in the current quarter to hit $11 billion, which is way ahead of the $7.2 billion consensus estimate. Nvidia's guidance suggests that its top line would jump 64% on a year-over-year basis, driven primarily by the growing application of generative AI, a technology that relies heavily on graphics cards to train large language models.
Nvidia's outstanding guidance has sent the stock flying. But that also means that the tech stock is now prohibitively expensive for anyone looking to jump onto the AI gravy train now.
As it turns out, Nvidia is trading at a whopping 202 times earnings. While the company may be able to justify that valuation thanks to the massive addressable opportunity it is sitting on, investors with less appetite for risk may not want to put their money in such an expensive stock.
That's why it may be worth taking a closer look at Marvell Technology (MRVL -1.86%), another chipmaker that stands to win big from the adoption of AI.
Marvell Technology expects AI to be a massive growth driver
Marvell released first-quarter fiscal 2024 results (for the three months ended April 29) on May 25. The chipmaker's revenue fell 9% over the prior-year period to $1.32 billion last quarter. Non-GAAP (generally accepted accounting principles) earnings fell to $0.31 per share from $0.52 per share in the year-ago period. The guidance isn't great either, as Marvell's forecast of $1.33 billion in revenue in the current quarter would translate into a year-over-year decline of 13%.
The chipmaker is forecasting $0.32 per share in adjusted earnings in the current quarter. Again, that would be a massive drop over the year-ago period's figure of $0.57 per share. Still, shares of Marvell Technology popped 29% on the day following its earnings release as management pointed out that the proliferation of AI technology is going to give the company a big boost.
But that's not surprising, as Marvell CEO Matt Murphy pointed out something similar in March this year as well. The company was witnessing robust demand for its high-speed connectivity chips at that time. And now, Marvell management has quantified the gains that AI, especially generative AI, could drive for the company.
Answering an analyst query over the latest earnings conference call, Murphy said that Marvell could generate $400 million in revenue from AI-related chip sales this fiscal year, double what it generated in fiscal 2023. More importantly, Marvell expects AI revenue to double once again in fiscal 2025. The company generated $5.9 billion in revenue last year, which means AI accounted for just over 3% of its top line.
Analysts are expecting Marvell to deliver $5.5 billion in revenue this fiscal year, which means that AI could produce more than 7% of its top line. Based on the fiscal 2025 estimate of $6.5 billion, which points toward an 18% acceleration in the company's revenue, AI could account for more than 12% of the top line.
This chart shows how Marvell's growth is expected to pick up.
MRVL Revenue Estimates for Current Fiscal Year data by YCharts
In addition, the term "AI" was mentioned a whopping 76 times on the company's earnings call, as management remains confident that the technology could turn out to be a serious growth driver in the long run. Marvell is already witnessing robust demand for its computing and networking products thanks to AI, which is evident from the terrific revenue growth it is expecting from the adoption of the technology.
More importantly, Marvell says that the deployment of AI infrastructure would create the need to refresh data center infrastructure every 18 months to 24 months, compared to the current cycle of four years. With 60% of Marvell's revenue coming from the data center and enterprise networking markets, it won't be surprising to see an improvement in the company's addressable market thanks to AI.
Is the stock worth buying?
Marvell's stock has surged 76% in 2023. As a result, it is now trading at 9.6 times sales, up significantly from the 5.4 price-to-sales multiple it was sporting at the end of 2022.
Marvell's current sales multiple is on the expensive side, considering the sharp decline in earnings and revenue it has been reporting. However, as mentioned, the company's revenue growth is expected to improve next fiscal year, though it won't be surprising to see AI bring about a faster turnaround in its fortunes.
Additionally, its earnings are expected to step on the gas as well.
MRVL EPS Estimates for Current Fiscal Year data by YCharts
Moreover, Marvell stock is way cheaper than Nvidia's. So, investors looking to buy a potential AI winner right now may want to start accumulating Marvell Technology before it becomes more expensive, which looks like a strong possibility, given how fast it expects its AI-driven revenue to increase.
