Share prices of Marvell Technology (MRVL -0.47%) surged to new highs this year, as investors anticipate strong artificial intelligence (AI) demand boosting the company's data center solutions business.
Earlier this week, KeyBanc analysts maintained their overweight (buy) rating on the shares but reduced their price target from $95 to $90 after noting the potential for product delays to negatively impact the company's growth this year. The new price target for the next 12 months or so still represents a nearly 24% upside over the current share price.
Is Marvell stock a buy?
Marvell reported improving growth last quarter, driven by strong demand for AI in the data center. Total revenue only grew 1% year over year but revenue from the data center business increased by an impressive 54% over the year-ago quarter.
However, KeyBanc noted that Marvell may experience some delays in ramping up products for Amazon Web Services (AWS), where Marvell is a key supplier. Marvell is also a supplier for AI chip leader Nvidia, which is releasing a new server rack system, but the downside for Marvell is that Nvidia's GB200 rack doesn't require optical connectors.
Still, Marvell sees the adoption of AI as a key growth driver in the near term. The company made investments over the last several years to prepare for the AI wave. Management's guidance calls for data center revenue to increase in the low-single-digit range in fiscal Q1 over the previous quarter, but it may need to outperform that estimate to satisfy investor's high expectations.
The stock trades at an expensive forward price-to-earnings ratio of 50, which is why the analyst is dialing back its price target in light of the potential product delays. The Wall Street consensus estimate has the company's earnings per share reaching $3.33 in the next two years.
Given the stock's expensive price tag, Marvell will need to beat Wall Street's expectations to deliver big returns from here.
