A fast-growing company in the semiconductor space is positioning itself as an attractive investment opportunity, particularly as the artificial intelligence (AI) sector continues to disrupt traditional markets. With AI technology becoming increasingly essential for enhancing productivity, numerous companies engaged in AI have seen significant increases in their share prices. However, one firm stands out as it currently offers a favorable valuation amidst a competitive landscape: Marvell Technology.
Despite Marvell’s stock declining approximately 22% in the previous year, this dip might be advantageous for potential investors. While the PHLX Semiconductor Sector index surged nearly 46%, driven largely by AI-related demands, Marvell’s stock fell due to high investor expectations and a recent downgrade from analysts suggesting a potential loss of a contract with a key customer. Nonetheless, the company’s recent financial results have remained solid and do not fully reflect the stock’s downturn.
Marvell Technology has been benefiting from a surge in demand for application-specific integrated circuits (ASICs) designed for AI workloads, especially in data center environments. ASICs are recognized for their higher computing efficiency compared to general-purpose chips like graphics processing units (GPUs). As industries increasingly rely on these specialized chips, firms like Marvell are becoming essential partners for major tech companies, including Alphabet, Amazon, and Microsoft.
Given that ASIC shipments are projected to grow by 45% in the coming year compared to a mere 16% rise in GPU shipments, Marvell is strategically positioned to capitalize on this trend. Notably, Alphabet is moving forward with plans to deploy its custom chips for AI applications with partners like Anthropic and Meta Platforms, signaling potential contracts worth tens of billions of dollars.
Furthermore, Marvell’s partnership with Alphabet could yield significant long-term results. Analysts predict that Alphabet’s pursuit of a $900 billion revenue opportunity from selling its in-house AI chips to third parties could greatly benefit Marvell. The company’s management has also indicated that they are developing custom designs for emerging hyperscalers, seeing a potential lifetime revenue of $75 billion from their data center business—an impressive projection compared to its recent trailing revenue of just under $8 billion.
Given these growth prospects, Marvell’s current valuation presents a compelling buy opportunity for investors. Projected revenue for fiscal year 2026 is expected to reach $8.2 billion, reflecting a remarkable 42% increase. In tandem, earnings per share are anticipated to grow by 80% to $2.83, driven by improved profit margins.
Looking ahead, if Marvell can achieve earnings of $4.79 per share in a few years and trade at a typical earnings multiple of 33—consistent with the Nasdaq-100 index—the stock price could potentially soar to $158. This suggests an upside of 84% from its current valuation of around 30 times earnings, a discount compared to the average for its tech peers.
As the demand for AI applications continues to rise, Marvell Technology appears to be a solid investment for those looking to capitalize on long-term growth in the disruptive technology sector. Investors seeking to enhance their portfolios may want to consider the potential benefits of including Marvell in their stock selections.
