Marvell Technology (MRVL +4.51%) may not be the first artificial intelligence (AI) semiconductor company that investors may consider for their portfolio. After all, there are bigger companies in this niche that have been growing at terrific rates, driven by the massive deals that they have been inking with hyperscalers and AI companies.
Even Marvell's stock price performance hasn't been particularly strong in 2025. Shares of the company that designs custom processors and networking chips are down 10% this year. That's a massive underperformance, considering the PHLX Semiconductor Sector index has gained an impressive 46% this year.
Marvell stock's underperformance, however, doesn't seem justified. What's more, the company's latest results make it clear that it is indeed making a name for itself in the AI chip market. In fact, it won't be surprising to see this semiconductor stock stepping on the gas in 2026. Let's see why that may be the case.
Image source: Getty Images.
AI is fueling terrific growth in Marvell Technology's revenue and earnings
Marvell released its fiscal 2026 third-quarter results (for the three months ended Nov. 1) on Dec. 2. The company reported a 37% year-over-year increase in revenue to $2.1 billion. Marvell's non-GAAP (adjusted) earnings shot up by almost 77% from the year-ago period to $0.76 per share. The stronger growth in Marvell's bottom line is a result of its improving product mix, as the company pointed out on the latest earnings call.
NASDAQ: MRVL
Key Data Points
The data center business was its biggest growth driver last quarter, delivering a 38% year-over-year jump in revenue and accounting for almost three-fourths of Marvell's top line. Importantly, the company experienced robust growth in other segments, such as enterprise networking and carrier infrastructure, suggesting that demand for its networking components remains solid.
The good part is that Marvell sees its data center business sustaining its healthy growth on the back of new customer programs that will go into production over the next couple of years. Management points out that it has "several high-volume custom designs in development," which are likely to contribute meaningfully to its top line from fiscal 2028. It will also start supplying custom AI processors to a large customer that's transitioning to a next-generation architecture developed by Marvell.
It is worth noting that the company enjoyed strong design win momentum last quarter. Its custom AI chips have been selected for deployment in more than 20 sockets by customers. That's not surprising, as Marvell pointed out in June that it has more than 50 opportunities to land design wins in custom chips across more than 10 customers. The company appears to have made solid progress on that front last quarter.
Given that Marvell sees a potential lifetime revenue opportunity of $75 billion from its custom AI opportunity pipeline, investors can expect further acceleration in the company's data center business in the long run. What's more, the company has bolstered its AI prospects with its decision to acquire Celestial AI for $3.25 billion.
Celestial AI is a provider of photonic fabric interconnect technology. Marvell says that this technology is ideal for AI data center clusters because of its "high-bandwidth, low latency, low power and cost-effective optical fabric." In fact, photonic fabric is twice as power-efficient as copper data center interconnects, and it transmits data over longer distances with significantly lower latency.
Marvell is forecasting Celestial AI to start contributing meaningfully to its top line from the second half of fiscal 2028. Specifically, the company anticipates Celestial AI generating an annualized run rate revenue of $500 million in the fourth quarter of fiscal 2028, a figure expected to double by the fourth quarter of fiscal 2029.
All this indicates that Marvell is poised to win big in the AI chip market in the long run, and that's precisely why the stock's fortunes could start looking up from 2026.
An attractive valuation sets this stock up for healthy gains
Even though Marvell has been clocking remarkable growth of late, it trades at an attractive 35 times earnings. This isn't surprising, as the market hasn't given the stock its due in 2025. However, Marvell shot up nearly 8% following its latest quarterly report, which suggests that it may be gaining favor among investors.
Moreover, the company seems poised to outperform consensus expectations next year. Analysts are forecasting a 25% jump in its bottom line in fiscal 2027, down from the 81% growth that's projected for the current fiscal year. Of course, the divestment of the company's automotive Ethernet business last quarter will contribute to a slower jump in earnings. However, it is worth noting that Marvell is still forecasting a substantial year-over-year increase of 32% in its bottom line in the current quarter to $0.79 per share.
Its earnings for fiscal 2026 would be $2.84 per share, based on its forecast. Assuming it achieves a 30% growth rate in earnings in the next fiscal year, its bottom line could jump to $3.70 per share. Multiplying that by the Nasdaq-100 index's average earnings multiple of 34 (using the index as a proxy for tech stocks) points toward a stock price of $126 after a year, a potential increase of 31% from current levels.
However, this AI stock could deliver higher returns since the new design wins it spoke of last quarter could help it deliver a bigger jump in earnings. That's why it would be a good idea to buy this underperforming stock before it steps on the gas next year and flies even higher in the long run.
