Shipments of artificial intelligence (AI) servers have shot up remarkably in the past couple of years as cloud service providers have been investing huge amounts of money in infrastructure that's capable of training AI models, as well as for AI inferencing purposes to deploy those models in real-world applications.
Market research firm TrendForce estimates that the global AI server market could hit a whopping $187 billion in revenue this year, up by 69% from 2023. Several companies are already benefiting big time from this huge end-market opportunity. From chip manufacturers such as Nvidia to custom chip producers such as Broadcom and server solutions providers such as Dell Technologies, there are multiple ways to invest in the booming AI server market.
In this article, however, we will take a closer look at the prospects of Micron Technology (MU 1.63%) and Marvell Technology (MRVL 1.59%), two companies that make critical components that go into AI servers.
Micron Technology's high-bandwidth memory chips are in terrific demand
High-bandwidth memory (HBM) is used in AI server chips such as graphics processing units (GPUs) because of its ability to enable faster transfer of data to reduce processing times and boost performance, as well as reduce power consumption. The demand for HBM is so strong that Micron says that it has sold out its entire capacity for this year and the next.
NASDAQ: MU
Key Data Points
Even better, Micron management points out that it "will have a more diversified HBM revenue profile" for 2026 thanks to the new business that it has landed for its latest HBM3E chip. The chipmaker points out that it has already begun shipments of this new chip to its customers for approval.
Micron claims that HBM3E consumes 20% less power and provides 50% more capacity as compared to rival offerings. The company expects to start the production ramp of HBM3E in early 2025 and increase its output as the year progresses. Even better, Micron is confident that it will continue to gain more share in the HBM market.
Singapore-based news channel CNA points out that Micron is reportedly aiming to grab 20% to 25% of the HBM market by next year. That is likely to give Micron's growth a big boost next year as it expects the HBM market's revenue to jump to an impressive $25 billion in 2025 from just $4 billion in 2023.
An expansion of the end market along with Micron's focus on grabbing a bigger share of the HBM space are the reasons the company's revenue is expected to jump by a stunning 52% to $38 billion in the current fiscal year (which started on Aug. 30). Meanwhile, analysts are forecasting Micron's earnings to increase to $8.94 per share from $1.30 per share in the previous year.
Micron is expected to keep growing at a terrific pace in the next fiscal year as well.
MU Revenue Estimates for Next Fiscal Year data by YCharts
Buying shares of Micron Technology right now could turn out to be a smart move for investors looking to benefit from the growing deployment of AI servers. The stock has a forward earnings multiple of just 11, while its price/earnings-to-growth ratio (PEG ratio) of just 0.16 further reinforces the fact that it is incredibly undervalued with respect to the growth that it is forecast to deliver.
Marvell Technology is getting a nice boost because of its custom AI chips
Marvell Technology is known for manufacturing application-specific integrated circuits (ASICs), which are custom chips designed to perform specific tasks. It is worth noting that the demand for these custom chips deployed in AI servers is increasing since major cloud service providers such as Meta Platforms, Alphabet's Google, and Amazon are looking to reduce their costs by developing in-house processors.
NASDAQ: MRVL
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As a result, ASICs are expected to account for 26% of the overall market for AI server chips in 2024. Even better, the deployment of ASICs in AI servers is expected to increase at a nice clip in the future and open a potential revenue opportunity worth an impressive $150 billion. Marvell is already capitalizing on this lucrative opportunity.
The company's overall revenue was down 5% year over year in the second quarter of fiscal 2025 (for the three months ended Aug. 3) to $1.27 billion thanks to the weakness in the carrier infrastructure, consumer, automotive, and enterprise networking end markets. However, it delivered a tremendous year-over-year increase of 92% in data center revenue to $881 million.
There is a good chance that Marvell's data center business will continue to grow at a healthy clip as the company's AI chip production is set to ramp up, as pointed out by CEO Matt Murphy on the latest earnings conference call:
Our AI custom silicon programs are progressing very well with our first two chips now ramping into volume production. Development for new custom programs we have already won, including projects with the new Tier 1 AI customer we announced earlier this year, are also tracking well to key milestones.
As a result, Marvell is expecting its data center business's growth to "accelerate into the high teens sequentially on a percentage basis" in the current quarter, which would be an improvement over the 8% sequential growth it reported in the previous quarter. This explains why Marvell's guidance for the current quarter points toward an improvement in its financial performance.
The company is expecting revenue of $1.45 billion in fiscal Q3, up from $1.42 billion in the same quarter last year. So, Marvell is set to return to growth from the current quarter, and analysts are expecting it to deliver robust growth over the next couple of fiscal years.
MRVL Revenue Estimates for Current Fiscal Year data by YCharts
Additionally, analysts are expecting Marvell's earnings to increase at a compound annual growth rate of 21% for the next five years. So, investors looking to get their hands on a semiconductor stock to benefit from the growing demand for custom AI chips can consider adding Marvell Technology to their portfolios. Its growth is set to accelerate thanks to the tremendous opportunity in the AI server market.
