The artificial intelligence boom (AI) has demonstrated that some of the winners keep on winning. Cloud computing, software, and cybersecurity stocks have been some of the market leaders, but it's impossible to talk about this new technology without bringing up AI chips.
These chips are the foundation for AI progress. Big tech companies are spending billions of dollars on chips for their AI infrastructure. Most AI chipmakers have rallied over the past few years, but there is one notable exception: Marvell Technologies (MRVL 5.61%).
The chipmaker has been progressing nicely and just had to deal with some rumors that dragged down the stock price. Marvell shares are down year to date despite the company reporting strong financial results and gaining market share in a critical industry.
AI is still just getting started
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AI will produce more businesses like OpenAI, which developed ChatGPT and already makes billions of dollars each year. Physical robots, autonomous vehicles, and advanced AI-powered software are some of the ways the industry will expand.
NASDAQ: MRVL
Key Data Points
The tech giants that are already using AI continue to aggressively invest in chips. They are on track to spend more than $400 billion on AI this year and plan to spend even more money next year. That's not what you would expect from an "overheated" industry. Yes, many AI stocks have gone up by a lot, but until a humanoid robot does household chores and you can find driverless vehicles in the closest city, this technology is still nowhere close to realizing its full potential.
Marvell is one of the beneficiaries of this trend, and the company reminded investors of that truth in its results for the third quarter of fiscal year 2026, which ended Nov. 1. Revenue increased by 37% year over year and exceeded the midpoint of its guidance. Marvell also recently acquired Celestial AI to accelerate its scale-up plan.
Rumors have made the stock even cheaper
Some investors are starting to see Marvell's potential. The stock went from $77 per share on Nov. 20 to $100 per share on Dec. 3, marking a 31% increase over the past two weeks.
However, the stock dropped by more than 10% from that level due to rumors about Marvell losing some of its custom chip business from Amazon and Microsoft. If the rumor is true, it undoubtedly makes things more difficult for Marvell, but that's only if those rumors are true.
Marvell CEO Matt Murphy dispelled the rumors in a Tuesday interview with Jim Cramer. He was adamant that the company did not lose any business and that Amazon and Microsoft remain loyal customers.
Marvell stock still hasn't reached the price point it held before the rumor circulated. The growth stock may be undervalued based on that detail alone.
Marvell looks undervalued compared to its peers
When most people think about AI chipmakers, they gravitate toward Nvidia, Broadcom, and Advanced Micro Devices. Those companies' year-to-date gains are 33%, 78%, and 84%, respectively. Meanwhile, Marvell stock has lost 19% of its value during the same stretch.
Marvell has achieved higher revenue growth rates than Broadcom and Advanced Micro Devices in recent quarters, suggesting that it should have a valuation closer to its peers. However, Marvell stock trades at a lower P/E ratio than both companies.
Investors can argue that Marvell stock has a lower valuation because it has a lower profit margin than the other AI chipmakers. Marvell's net profit margin has hovered around 10%, while Broadcom has had a 30%+ profit margin in recent quarters. Advanced Micro Devices' profit margin is closer to Marvell's, while Nvidia is in a different stratosphere with a 55% net profit margin.
Marvell's Celestial AI acquisition can fuel revenue growth while expanding its profit margin. While investors shouldn't expect Marvell to achieve a 50%+ profit margin like Nvidia anytime soon, it's feasible for the company to eventually deliver a 20% net profit margin based on Broadcom's success. Doubling its profit margin while maintaining high revenue growth gives Marvell more opportunities to shrink its P/E ratio and warrant a higher stock price.
There is some short-term noise that is weighing the stock down, but long-term investors won't think much about it within a few years.
