Is it time to sell AI stock Marvell Technology?
For long-time shareholders of artificial intelligence (AI) semiconductor design companies marvel technology (MRVL 1.20%) We had a hard time (including myself). The stock trails the chip industry average’s total returns as measured by both companies. iShares Semiconductor ETF and VanEck Semiconductor ETF In 3, 5, or 10 year increments.
Data from YCharts.
Of course, Marvell has been rebuilding itself under Matthew Murphy, who joined as CEO in 2016 from Maxim Integrated (which was later acquired). analog device). The company has made several large acquisitions from 2020 to 2022 to prepare for the data center AI boom that is currently taking place, and it appears that these moves are just starting to pay off.
Nonetheless, the last earnings report showed mixed results. Will AI be a game changer for Marvell, or is it time to cut ties and sell this stock?
Marvell’s Increasing Reliance on AI Chips
Historically, Marvell has been a diverse seller of high-performance network and data storage management chips, including for consumer devices such as PCs. But under Murphy, Marvell made a major pivot in data centers, particularly chips used for AI training. The company attracted investor interest by promoting accelerated computing system design partnerships. nvidiaPosition as the semiconductor giant’s biggest competitor Broadcom.
The fourth quarter of fiscal year 2024 has ended. February 3rdThe data center business accounted for more than half of total revenue, and on the earnings call the CEO said AI chip sales included in the data center segment were “well over $200 million.”
The good news is that Marvell expects its data center and AI businesses to continue growing at a strong pace this fiscal year. The bad news is that the rest of the business (the half not connected to the data center) is still struggling.
marvel segment | Fiscal 2024 Fourth Quarter Earnings | Change (YOY) | Q1 2025 Expectations (QOQ) |
|---|---|---|---|
data center | $765 million | 54% | low single digit growth rate |
Enterprise (non-data center and non-cloud) | $243 million | (34%) | 40% reduction |
Mobile carrier (5G network, etc.) | $171 million | (38%) | 50% reduction |
consumer market | $143 million | (21%) | 70% reduction |
automotive and industrial | $82 million | (17%) | flat |
total revenue | $1.43 billion | One% | $1.15 billion, down 20% (down 13% YOY) |
Data source: Marvell Technology Group. YOY = compared to the previous year. QOQ = quarterly quarterly.
Non-data center sales could remain weak through the first half of 2024 (fiscal 2025 for Marvell), offsetting some of the progress in the hot AI market, Murphy and executives said on the fourth-quarter conference call.
Is this AI hype to ignore?
The bottom line is that after nearly two years of Marvell going through a period of transition due to the pandemic and a downturn in the semiconductor industry, the company expects end markets outside of data centers to finally stabilize and return to sequential growth within two years. Half of 2024.
Marvell’s board of directors approved a $3 billion stock repurchase plan based on revenue visibility over the next few years. Profitability (as measured by free cash flow) has been poor over the past few years, but this may be the clearest sign that better times are ahead.
Data from YCharts.
In fact, despite its poor sales performance, Marvell reported that free cash flow last quarter increased 58% year-over-year to $465 million. With sales of its new AI chips increasing after years of development and gaining technical know-how, Marvell may actually be on the verge of turning over a new leaf.
Of course, currently trading at 56 times trailing-12-month free cash flow, Marvell is not a cheap stock. But if the company is indeed set to finally return to overall growth this year, selling now may be premature. I’m excited to stick around and see how this AI development cycle plays out.
Nicholas Rossolillo and his clients include Broadcom, Marvell Technology, and Nvidia. The Motley Fool has a position at and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
