Nvidia (NASDAQ:NVDA) CEO Jensen Huang recently expressed his admiration for other companies, particularly at the Computex event in Taipei. He specifically pointed out Marvell Technology (NASDAQ:MRVL), stating it has the potential to become “the next trillion-dollar company.”
Mr. Huang noted that a surge in semiconductor stocks was observed recently, with Marvell’s stock leaping 32.5% last Tuesday (June 2). This impressive shift pushed the company’s market cap over $250 billion. If Huang’s predictions hold true, there’s potential for the stock price to quadruple from current levels. Notably, Nvidia had also taken a $2 billion stake in Marvell earlier this year.
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Optical Winner
Marvell operates through two primary business segments. Alongside Broadcom, it leads in ASIC (Application Specific Integrated Circuit) technology, offering IP licenses to companies developing their own chips. Their strategy is somewhat different from Broadcom’s comprehensive ecosystem approach. Marvell also has valuable IP in SRAM (static random access memory).
Amazon stands out as Marvell’s largest customer, utilizing some of its IP in the Trainium chip. However, there’s some worry that Marvell’s presence in future Trainium chips could diminish as Taiwanese company AIchip steps in. Moreover, Marvell is partnered with Microsoft on the new Maia chip. While this could mitigate losses from Amazon, Microsoft’s custom chips haven’t yet gained widespread adoption. There’s a chance that Amazon’s market grows enough to cushion Marvell’s losses, or perhaps Microsoft will generate enough demand to leverage Maia effectively.
Interestingly, the appeal of Marvell’s business to Nvidia, and Huang’s bullish outlook, seems to hinge on Marvell’s connectivity operations rather than its ASIC division. In the expanding landscape of AI clusters, hyperscalers are now segmenting server architectures into specialized clusters for distinct tasks like prefill and decoding. This evolution demands ultra-high-speed connectivity, propelling a shift from traditional copper wiring to optical interconnects.
Marvell’s interconnect business is experiencing rapid growth, with projections indicating a 70% increase this year. Additionally, total revenue is anticipated to rise by 40%, nearing $11.5 billion. However, achieving a valuation of $1 trillion based on these metrics is a tall order, especially given the company’s gross profit margin hovers around 52%.
Currently, the stock trades at a forward P/E ratio of 70.5x, suggesting it needs significant growth to really quadruple in value. For the moment, this stock feels a bit overextended to me, so maybe waiting for a better entry point would be wise.
Should You Buy Marvell Technology Stock Now?
Before making any decisions regarding Marvell Technology stock, consider the following:
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Jeffrey Seiler has held positions at Amazon and Broadcom. The Motley Fool recommends Amazon, Broadcom, Marvell Technology, Microsoft, and Nvidia. For further details, please see our disclosure policy.
