After an epic run in 2023 thanks to artificial intelligence (AI) hype that turned out to be more than just a fleeting fad, Nvidia has soared into the public's collective consciousness. The GPU (graphics processing unit) designer is at the forefront of a movement to accelerate the world's computing infrastructure, and the company's shareholders have been handsomely rewarded.
But how many investors have heard of Marvell Technology (MRVL +0.57%)? Not nearly so many. And yet, while Marvell isn't at the heart of the AI movement like Nvidia is, Citi analyst Atif Malik just named Marvell his top specialty chip stock for 2024. Is it time to buy?
Careful about chasing stock prices
Last spring, Marvell stock skyrocketed on the heels of Nvidia's own AI-fueled blowout revenue growth. The reason? GPU-powered systems used to train AI in data centers need to be networked together, and chips used to string these GPU systems together into giant computing "clusters" are a specialty of Marvell -- as well as its bigger rival Broadcom.
However, since Marvell stock's resurgence from multi-year lows, the company's revenue has actually peaked and is now in the midst of a decline.
Data by YCharts.
What gives? Over at Citi, Malik's optimism is the most readily apparent reason for the market's hopes for Marvell. Though AI networking chips could rapidly ramp up to a very sizable chunk of sales this year, other end markets remain in or are just entering a downturn for Marvell.
There's building anticipation that these declining end markets will soon bottom out (like the non-AI data center business) and join AI as growth drivers for the company once more. This is seen in management's stated results for the fiscal 2024 third quarter (ended in Oct. 2023) and guidance for the fourth quarter (ending Jan. 2024).
|
Marvell Technology Segment |
Q3 Fiscal 2024 Revenue |
Q3 Fiscal 2024 YOY Change |
Q4 Fiscal 2024 QOQ Outlook |
|---|---|---|---|
|
Data center (including AI) |
$556 million |
(11%) |
Mid-30% increase |
|
Enterprise (non-data center and non-cloud) |
$271 million |
(28%) |
Mid-single-digit % decrease |
|
Mobile carriers (5G networks and other) |
$317 million |
17% |
Mid-40% decrease |
|
Consumer markets |
$169 million |
(5%) |
Mid-teens % decrease |
|
Automotive and industrial |
$107 million |
26% |
20% decrease |
|
Total |
$1.42 billion |
(8%) |
Flat, $1.42 billion |
Data source: Marvell Technology. YOY = year over year. QOQ = quarter on quarter.
So what's the problem? As recently as early January, Marvell CEO Matt Murphy is on public record as saying it's still too soon to say if the non-AI markets have finished their freefall. The same goes for the mobile infrastructure and automotive businesses, which were still riding high until last quarter but are now due for a cool-down in calendar year 2024.
In total, that's upwards of half of Marvell's revenue streams that have an uncertain near-term outlook. And with the stock charging over 40% higher in the last three months alone, some investors might be getting ahead of themselves.
NASDAQ: MRVL
Key Data Points
Optimism may only be misplaced for a little while longer
All of this said, I've owned Marvell stock for a number of years, and I'm keenly interested in the next earnings update (likely in late February or early March). While I'm not adding to my position now, any clear indication that the worst of the downturn is in the rearview mirror for Marvell could spell "buy" for me.
But I'm being patient and believe most investors would be well served doing the same. The stock trades for over 70 times trailing-12-month free cash flow as of this writing, after the 40%-plus surge.
If you're looking for a top AI and custom-computing chip leader, Marvell is worth getting acquainted with. But for most investors wanting to start building a position now, a small dollar-cost averaging plan would be the best route.
