Marvell Earnings: We Raise Our Medium-Term AI Forecast and Bring Our Valuation Up to $75

Key Morningstar Metrics for Marvell MRVL

• Fair Value Estimate: $75.00
• Morningstar Rating: 2 stars
• Economic Moat: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Marvell‘s Earnings

We raise our fair value estimate for narrow-moat Marvell Technology to $75 per share, from $65, as we raise our medium-term revenue forecast to account for significant growth in generative artificial intelligence sales.

We believe Marvell will be a significant beneficiary of investment into generative AI with diverse exposure across custom accelerators, optical chips, and merchant switch chips. Management now sees upside to the targets provided at its AI investor day in April, which we see as positive and aligned with our bullish long-term growth thesis. Marvell’s non-AI end markets remained weak in the first fiscal quarter, but we believe AI strength will more than offset weakness elsewhere through fiscal 2025, and that softer demand is a short-term dynamic. We see Marvell as fairly valued. Investors eager to play into generative AI may see a good opportunity currently, given overvaluations of other AI beneficiaries under our coverage.

Fiscal first-quarter sales fell 12% year over year and 19% sequentially to $1.16 billion, in line with management guidance. Data center sales rose 87% year over year and 7% sequentially, led by rising growth from generative AI applications. Every other end market for Marvell declined in the double digits year over year, with enterprise, telecom, and consumer customers digesting built-up inventories and slowing new orders. We expect steep declines for Marvell’s non-data center end markets through fiscal 2025, but for growth to resume thereafter. A higher mix of data center sales weighed on gross margin, but we see a non-GAAP level of 62% as healthy for the firm and a decent floor against weak end demand outside of the data center.

Fiscal second-quarter guidance was constructive, implying 8% sequential revenue growth at the midpoint. We model Marvell to approach the high ends of its guidance ranges next quarter as we model robust sequential data center and AI growth. We model sequential growth and margin expansion through fiscal 2025.