Up 25% This Month, What’s Next For Marvell Stock?

Marvell Technology (NASDAQ:MRVL) has surged roughly 25% since our September 5th note, where we laid out a bold case for the stock potentially doubling. (Marvell: MRVL Stock To $140) The rally has been fueled by a couple of factors. Firstly, the company announced a $5 billion stock repurchase authorization and an immediate $1 billion accelerated share repurchase, signaling management’s confidence in the company’s growth prospects while signaling that the stock remains undervalued. Bullish commentary by management during recent investor events also indicates that the company expects solid AI and data center related growth. Besides this, the AI market has seen a couple of  multi-billion dollar deals for chipsets and compute power, involving Open AI, Nvidia (NASDAQ:NVDA) and Oracle and this has also likely boosted sentiment around stocks like Marvell.

Image by Pete Linforth from Pixabay

Why The Stock Lagged This Year

The stock has seen a sharp sell off this year falling by close to 30% since early January driven in part by lumpy orders for Marvell’s custom AI accelerators, but such quarterly volatility is fairly common in this market. Delays in Microsoft (NASDAQ:MSFT) next-generation AI chips amid design changes could be pushing back demand for Marvell’s silicon, while Amazon’s (NASDAQ:AMZN) AWS, which relies on Marvell for its Trainium AI chips, has been losing market share to Microsoft Azure and Google Cloud.  However, these issues appear more like timing-related volatility than structural problems. Marvell’s long-term opportunity in AI remains compelling, supported by its optical connectivity chips and rapidly growing custom ASIC business.

Marvell’s AI Opportunity

Marvell’s role into the AI market began with its high-speed interconnect solutions for data centers. These optical and electrical interconnects are crucial for moving the enormous volumes of data generated by AI and machine learning workloads. Given that these workloads rely on massive parallel processing and ultra-fast data transfer, they place heavy demands on existing infrastructure, creating a need for the advanced connectivity technologies that Marvell provides. The bigger growth driver is likely to be application-specific integrated circuits (ASICs) designed for AI. Unlike general-purpose GPUs, ASICs are customized for the requirements of individual customers such as hyperscalers, delivering better cost efficiency, lower power consumption, and superior performance.

Big tech is in the middle of an unprecedented AI spending spree. Amazon is expected to spend up to $105 billion on capex in 2025, while Microsoft, Alphabet, and Meta are forecast to spend as much as $80 billion, $75 billion, and $72 billion respectively, much of it earmarked for AI infrastructure such as GPUs from Nvidia (NASDAQ:NVDA). Oracle said earlier in September that it has signed hundreds of billions of dollars worth of contracts to provide cloud computing services to OpenAI as well as other large customers. However, investors will eventually begin to prioritize returns on AI investments and companies could become more judicious with spending. Big companies could seek alternatives to Nvidia, and Marvell’s specialized chips could be a top choice for hyperscalers.

While such deals will drive up demand for AI hardware, we believe that Marvell could be particularly well-placed. Why? There are signs that the most compute-intensive phase of AI training may begin to level off, with the industry’s focus shifting toward inference – the application of trained models to new data in real time and at massive scale. Inference is lighter per task but occurs continuously across millions of users and applications. This transition plays directly into Marvell’s strengths, as it opens the door for specialized, power-efficient solutions beyond the high-end GPUs that dominate training.

The market could potentially shift from large-scale general-purpose AI models to smaller, specialized ones, potentially helping more niche players like Marvell who offer tailored products that optimize costs and performance for specific applications. We are already seeing strong results on this front. Marvell’s data center business has tripled since 2023, with AI-related revenue growing sixfold. While optical interconnects account for roughly 50% of data center revenue, the company has also been expanding into AI compute solutions.

Fair Valuation

Marvell trades at about 50x trailing earnings and about 28x estimated FY’26 adjusted earnings. This is well below peers such as AMD and Nvidia. AMD trades at about 41x forward earnings, while Nvidia trades at about 40x. This indicates that Marvell’s multiple is not stretched. The company’s balance sheet also appears healthy. At the end of the most recent quarter, Marvell had $4.8 billion in debt against a market capitalization of $69 billion, implying a low debt-to-equity ratio of 7%. Cash and cash equivalents totaled $1.2 billion of $21 billion in total assets, resulting in a cash-to-assets ratio of 5.9%.

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