Shares of Marvell Technology (MRVL 3.17%) have been red-hot on the stock market over the past three months, surging more than 70% thanks to the company's fiscal 2024 first-quarter results, which were released at the end of May.
The chipmaker shot up nearly 30% in a single session following its earnings report for the period ended April 29, as it beat Wall Street's expectations on revenue and earnings, and pointed out that its "revenue growth will accelerate in the second half of the fiscal year." Artificial intelligence (AI) is going to play an important role in boosting Marvell's growth, as management said on the company's May earnings conference call.
That's why investors looking for a stock to benefit from the rapid adoption of AI technology may want to act before the company releases its fiscal 2024 second-quarter results on Aug. 24.
Marvell Technology's fortunes should turn around, thanks to AI
Marvell Technology's fiscal Q2 results likely won't be great. The company, whose chips are deployed in multiple end markets such as data centers, telecom infrastructure, enterprise networking, and automotive, expects revenue of $1.33 billion for the three months that ended in July 2023. It expects non-GAAP earnings of $0.32 per share for the quarter.
Those numbers point toward a substantial decline over the prior-year period's adjusted earnings of $0.57 per share on revenue of $1.52 billion. But this hasn't deterred investors from buying Marvell stock hand over fist in the past couple of months due to one reason -- AI. Marvell CEO Matt Murphy is expecting AI to contribute significantly to Marvell's business. He said he expects "Marvell's overall AI revenue to at least double in fiscal 2024," and it won't be surprising to see this catalyst help the company deliver stronger-than-expected growth.
But this is just the beginning, as Murphy added on the company's previous conference call: "In aggregate, we foresee our overall AI revenue to at least double again next year. In other words, we are forecasting an AI revenue growth CAGR over 100% over the fiscal 2023 to 2025 timeframe."
However, it is worth noting that AI could drive Marvell's growth for years to come as the growing adoption of this technology is going to create the need for more storage and faster connections within data centers. Murphy explained this on the earnings call:
To give you an idea, the latest dual CPU server in a cloud data center today can drive up to 200 gigabits per second of IO and contains the network interfaces to support that bandwidth. In contrast, an example of an advanced AI system containing eight accelerators can drive close to 30 terabits of full duplex bandwidth. That's hundreds of times more bandwidth required to connect these systems together.
As AI data centers are equipped with multiple accelerators to tackle massive workloads, Marvell expects this technology to significantly increase its revenue opportunity in the long run. This explains why Marvell has significantly bumped its revenue expectations from AI-specific chips that will be deployed in the cloud, stating that "the relative proportion of projected lifetime revenue from AI has increased from approximately 20% in our prior forecast to well over half today."
The good part is that catalysts such as AI could play an important role in boosting Marvell's top and bottom lines. The following chart shows that Marvell's growth is expected to pick up from the next fiscal year.
MRVL Revenue Estimates for Current Fiscal Year data by YCharts
Even better, analysts are expecting Marvell's earnings to increase at an annual rate of 14% for the next five years. However, it won't be surprising to see Marvell deliver faster growth than what analysts are looking for given the fast-growing nature of the AI chip market. Next Move Strategy Consulting estimates that the global AI chip market could be worth $304 billion in 2030 compared to just under $29 billion last year.
Why the stock remains a solid buy despite its rally
Marvell stock is now trading at 38 times forward earnings. While that's well above the forward earnings multiple of 16 at the end of 2022, this semiconductor stock still looks like a good bet thanks to a couple of reasons.
First, Marvell's forward earnings multiple is relatively cheaper than other AI stocks. Nvidia, for instance, trades at 55 times forward earnings. Micron Technology, which is another company that could win big from the AI revolution, has a forward earnings multiple of 77.
Second, the potential acceleration in Marvell's growth and the solid long-term prospects driven by AI could make the stock look cheap in the long run. As such, if you're looking to add an AI stock to your portfolio, it may be a good idea to consider going long Marvell stock as a strong set of earnings later this month could send the stock higher and make it more expensive.
