Semiconductor stocks have gotten a boost from rapid growth in the artificial intelligence (AI) market. Among them is Marvell Technology (MRVL +1.18%), which reached a 52-week high of $85.76 as recently as March 7.
Since then, the share price has been on a roller coaster. The stock exceeded $75 in the days leading up to Marvell's earnings announcement on May 30, but dropped after the company released results for its fiscal first quarter of 2025, which ended May 4.
Does this latest price drop represent an opportunity? Or are there reasons to avoid the stock? To determine if Marvell makes a good investment for the long haul, here's a look at where the company is today and its prospects amid the AI boom.
NASDAQ: MRVL
Key Data Points
The state of Marvell's business now
Over the last year, Marvell saw rising demand for its AI-related offerings, which fall into its data center segment. This division, catering to cloud computing companies, experienced an 87% year-over-year sales increase to $816.4 million in the fiscal 2025 first quarter.
Thanks to this massive growth, Marvell's data center business accounted for 70% of its $1.2 billion in revenue. Even so, sales were down 12% from the prior year's $1.3 billion.
That's because Marvell's other business lines experienced year-over-year revenue declines.
| Marvell Segment | Fiscal 2025 First-Quarter Revenue | YOY Change |
|---|---|---|
| Data center | $816.4 million | 87% |
| Enterprise networking | $153.1 million | (58%) |
| Carrier infrastructure | $71.8 million | (75%) |
| Consumer | $42 million | (70%) |
| Automotive/industrial | $77.6 million | (13%) |
Data source: Marvell Technology. YOY = year-over-year.
Despite the decrease in first-quarter sales from the prior year, management sees reasons for optimism. CEO Matt Murphy said, "While we are forecasting soft demand impacting consumer, carrier infrastructure, and enterprise networking in the near term, we expect revenue declines in these end markets to be behind us after the first quarter, and project a recovery in the second half of the fiscal year."
Positive trends in Marvell's business
As this recovery emerges, Marvell anticipates fiscal 2025 second-quarter revenue to come in around $1.3 billion, which is flat compared to the prior year.
This is an improvement over the first quarter's 12% year-over-year decline, and shows the company is on a trajectory toward better sales performance in the latter half of the year, as predicted by management.
Another factor in the company's favor is its growing business building custom AI components. According to Murphy, the company's custom AI program will experience a very substantial ramp-up in the second half of this year followed by a full year of high-volume production in fiscal 2026.
Moreover, Marvell was able to lower its cost of goods sold (COGS). The first quarter's COGS of $633.1 million is a solid reduction from the previous year's $764.5 million.
The lower COGS allowed the company's first-quarter gross profit margin to improve to 45.5% compared to 42.2% in the prior year. It estimates gross margin will expand to 46.2% in the second quarter of fiscal 2025.
This margin trend along with meeting its first-quarter revenue forecast of $1.2 billion are encouraging signs for Marvell's ability to adjust for the current cyclical downturn in many parts of its business.
Marvell's AI-powered growth
Marvell's AI products are expected to drive fiscal 2025's second-quarter data center revenue to a mid-single-digit percentage increase over the first quarter's $816.4 million. This would represent strong year-over-year growth compared to the segment's second-quarter sales of $459.8 million in fiscal 2024.
The ability to quickly grow sales in its data center segment is a testament to the demand for the company's AI services. Just a year ago, the division accounted for 33% of first-quarter revenue.
Now that number is 70%, and the data center business could see growth for several years. Industry forecasts call for the AI market to experience a multiyear expansion, from $136 billion in 2023 to $827 billion by 2030.
Marvell's ability to capture AI demand, combined with a rebound in its other lines of business, should help the stock make a comeback from its recent drop. In fact, the current consensus among Wall Street analysts is a "buy" rating with a median share price of $90.
Weighing all these factors, such as the years of potential demand for its AI-related products and strengthening gross margin, Marvell stock is a worthwhile long-term investment.
