Broadcom (AVGO +5.58%) and Marvell Technology (MRVL +2.73%) usually don't attract as much attention as higher-growth chipmakers like Nvidia (NVDA +4.39%).
But like Nvidia, both diversified chip specialists are benefiting from the rapid expansion of the artificial intelligence (AI) market. Let's examine the AI-driven tailwinds for both companies and see which stock is a better chipmaking play right now.
Image source: Getty Images.
The differences between Broadcom and Marvell
Broadcom has expanded and transformed over the past eight years. The Singapore-based chipmaker Avago bought the original Broadcom in 2016, inherited its brand, and relocated its headquarters to the U.S. in 2018. The "new" Broadcom subsequently expanded into the infrastructure software market by acquiring CA Technologies, cloud software giant VMware, and Symantec's enterprise security division.
In its latest quarter, Broadcom generated 58% of its revenue from its semiconductor business, which sells a wide range of wireless, optical, and data storage chips. The remaining 42% of its revenue came from its infrastructure software. Broadcom notably relied on Apple for 20% of its sales in fiscal 2022 and fiscal 2023 (which ended last October), but its acquisition of VMware -- which closed last November -- should reduce that percentage in fiscal 2024.
NASDAQ: AVGO
Key Data Points
Marvell is best known for its data processing units (DPUs), which bundle together CPUs, networking interfaces, and programmable data acceleration engines. It also sells infrastructure, Wi-Fi, and custom chips -- as well as networking and storage devices -- for the cloud, 5G, automotive, enterprise networking, and AI markets. Marvell similarly expanded inorganically over the past decade, but it didn't acquire any big software companies.
In its latest quarter, Marvell generated 70% of its revenuefrom the data center market, while the rest was split between its other end markets. A single unnamed customer (most likely Western Digital or Seagate) accounted for 24% of its revenue in fiscal 2024 (which ended this February).
NASDAQ: MRVL
Key Data Points
Why Broadcom and Marvell are both AI plays
Broadcom and Marvell are both experiencing strong sales of optical and networking chips for data centers. These chips don't process AI tasks on their own, but they're essential for ferrying massive amounts of data. So as data centers upgrade their servers with Nvidia's GPUs, they need to buy more of Broadcom's and Marvell's chips.
Broadcom expects to generate at least $11 billion in AI chip revenue in fiscal 2024, which would be equivalent to more than 21% of its projected full-year revenue. Marvell garnered more than 10% of its revenue from AI chips in fiscal 2024, and it expects that percentage to rise in fiscal 2025.
Neither of these chipmakers is a direct play on the AI market like Nvidia, which generated 87% of its revenue from the data center market in its latest quarter. Instead, they both serve a more balanced blend of non-AI and AI-driven markets.
Which of these chipmakers is growing faster?
Broadcom's revenue growth will be inflated by its acquisition of VMware this year, but analysts expect it to continue expanding after it laps that purchase. Marvell made a few acquisitions in fiscal 2023, but its revenue fell 7% in fiscal 2024 as macro headwinds throttled the growth of its carrier, enterprise networking, consumer, auto, and industrial markets. Analysts see that slowdown persisting through fiscal 2025 until the macro environment presumably improves in fiscal 2026.
|
Company |
Estimated Revenue Growth Current Fiscal Year |
Estimated Revenue Growth Next Fiscal Year |
EV/Revenue Ratio (Next FY) |
|---|---|---|---|
|
Broadcom |
44% |
16% |
17 |
|
Marvell |
(2%) |
33% |
12 |
Data source: Marketscreener. FY = fiscal year.
In terms of revenue, Marvell looks a bit cheaper than Broadcom relative to its enterprise value (EV). But if we look at their projected gains in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), Broadcom looks like the better value.
|
Company |
Estimated Adjusted EBITDA Growth Current Fiscal Year |
Estimated Adjusted EBITDA Growth Next Fiscal Year |
EV/EBITDA Ratio (Next FY) |
|---|---|---|---|
|
Broadcom |
34% |
22% |
27 |
|
Marvell |
(9%) |
58% |
38 |
Data source: Marketscreener. FY = fiscal year.
Furthermore, Broadcom is consistently profitable on a generally accepted accounting principles (GAAP) basis, while Marvell isn't. Marvell racked up GAAP losses over the past four fiscal years as it expanded, and analysts don't expect it to turn profitable again until fiscal 2026 -- but that's assuming it doesn't make any more massive acquisitions.
The better AI chip buy: Broadcom
Over the past 12 months, Broadcom's stock rallied 93% as Marvell's stock rose 16%. Investors were clearly more impressed by Broadcom's bold expansion of its software business, its increasing exposure to the AI market, and its stable GAAP profits. I believe those strengths will keep it ahead of Marvell -- which has less exposure to the AI market, less predictable growth rates, and steeper losses -- for the foreseeable future.
