Marvell Technology (MRVL +18.33%) is performing marvelously for shareholders. Buoyed by investor enthusiasm over artificial intelligence (AI) stocks, and in particular hopes to duplicate Nvidia's (NVDA 2.94%) performance as a chipmaker for the AI industry, shares of semiconductor stock Marvell soared 80% over the last 12 months, outperforming the broader S&P 500 by nearly 54 percentage points.
But can such outperformance last?
Investment bank B. Riley Financial made the case on Monday that it can last. Analysts at B. Riley predicted that Marvell will at minimum meet analyst projections for Q4 sales in its earnings report Thursday and they expect to hear "upbeat" comments on Marvell's AI prospects. Because of this, the analysts raised B. Riley's price target to $95 per share.
If Riley's right about that, investors in Marvell today could reap a 20% profit over the next 12 to 18 months.
NASDAQ: MRVL
Key Data Points
Is Marvell Technology stock a buy?
But are B. Riley's analysts right about Marvell?
A specialist in system-on-a-chip semiconductors for signal processing, Marvell isn't quite the same type of chipmaker as Nvidia. Even if it were, Nvidia boasts a market share in AI chips estimated at between 80% and 90%, making it hard for competitors to break into this business. Analysts polled about Marvell think the company will be lucky to grow its earnings much faster than 12% annually over the next five years, falling farther and farther behind Nvidia, which is expected to grow at more than 31% annually over that timeframe.
Even worse, Marvell stock is expected to remain unprofitable through 2024. Nvidia is wildly profitable. Although Marvell stock generates positive free cash flow, the $856 million in FCF it produced over the past year gives the stock a price-to-free cash flow ratio of nearly 80x.
That's a pretty rich price for a stock only growing at 12%.
The good news is Marvell doesn't have a high bar to clear on Thursday. Analysts expect its sales to grow only 0.1% year over year, to $1.4 billion, and for earnings to be flat at $0.46 per share.
