HomeMarket NewsThe Potential Trajectory of Marvell Technology Stock in the Next Few Years

The Potential Trajectory of Marvell Technology Stock in the Next Few Years

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Marvell Technologyβ€˜s (NASDAQ: MRVL) shares have soared by almost 50% in the past three years, eclipsing the S&P 500β€˜s 30% climb. The company’s growth trajectory has been fueled by strategic acquisitions and robust sales in various sectors, including cloud, 5G, automotive, enterprise networking, and AI markets.

Having basked in this historical success, the question now looms – can Marvell Technology maintain its upward momentum over the next three years?

The Core Operations of Marvell Technology

Marvell specializes in data processing units (DPUs) that integrate CPUs, networking interfaces, and programmable data acceleration engines. Additionally, it offers a range of products, such as infrastructure, Wi-Fi, custom chips, as well as networking and storage solutions.

An illustration of a semiconductor.

Image source: Getty Images.

Operating as a fabless chipmaker, Marvell outsources its manufacturing to third-party foundries, with Taiwan Semiconductor Manufacturing being a notable partner. Through a series of strategic acquisitions in the last three years, Marvell has expanded its portfolio significantly, with key acquisitions including Inphi, Innovium, and Tanzanite – companies specializing in mixed-signal integrated circuits, networking solutions for data centers, and workload optimization technologies respectively.

Marvell’s Growth Trajectory

From fiscal 2017 to fiscal 2021, Marvell witnessed a compound annual growth rate (CAGR) of 7% in revenue and 10% in earnings per share (EPS) on a non-GAAP basis. Noteworthy was the acquisition of Cavium in July 2018, significantly impacting its financial metrics. Over this period, Marvell’s non-GAAP gross margin rose from 55.9% to 63.3%, while its non-GAAP operating margin increased from 14.7% to 24.2%.

Despite fluctuations, Marvell saw accelerated revenue growth and expanding margins in recent years, with steady increases in adjusted earnings and earnings before interest, taxes, depreciation, and amortization (EBITDA).

Metric

FY 2022

FY 2023

FY 2024

Revenue growth

50%

33%

(7%)

Non-GAAP gross margin

64.9%

64.5%

61.2%

Non-GAAP operating margin

32.8%

35.5%

29%

Non-GAAP EPS growth

71%

35%

(29%)

EBITDA growth

89%

39%

(21%)

Data source: Marvell, MarketScreener.

In fiscal 2022, Marvell experienced a revenue surge attributed to acquisitions like Inphi and Innovium, along with organic growth in various sectors. However, as fiscal 2023 progressed, market headwinds intensified, tempering the growth momentum.

Throughout fiscal 2024, Marvell grappled with weakening markets in carrier, enterprise networking, consumer, automotive, and industrial sectors, counterbalancing robust growth in cloud, data center, and AI segments. The higher-growth markets, although promising, exerted pressure on the total gross margins.

Future Outlook of Marvell Technology

Marvell is banking on the continual expansion of the AI market to fuel its future growth. AI chips accounted for over 10% of its total revenue in fiscal 2024, a significant leap from about 3% in fiscal 2023.

During a recent fourth-quarter conference call, CEO Matt Murphy highlighted AI as a β€œkey growth driver” that is poised to sustain strong performance in the data center segment. Murphy anticipates optical products linked to the shipment of AI accelerators such as those from Nvidia to be significant revenue contributors.

As Marvell amplifies its AI-focused ventures, the stabilization of weaker markets is anticipated as macroeconomic headwinds abate. Analysts project a revenue CAGR of 15% and EBITDA CAGR of 24% from fiscal 2024 to fiscal 2027.

However, despite these favorable estimates, Marvell’s current valuations – at 13 times sales for this year and 37 times EBITDA – might appear inflated due to the AI stock frenzy and expectations of future interest rate cuts. Comparatively, a year ago, Marvell traded at 20 times forward EBITDA, escalating to 28 times two years back. Intriguingly, insiders have sold over 1.2 million shares in the past year without making any purchases.

Potential Upside for Marvell’s Stock

A moderation in Marvell’s valuations towards historical levels is probable, even if it hits Wall Street’s targets in the upcoming years. Assuming it surpasses these goals and trades at a more reasonable 25 times EBITDA by early 2027 (the conclusion of fiscal 2027), its shares could hover around $100 apiece.

This forecast indicates a respectable 36% increment from its current price. Nevertheless, this growth may not satisfy investors seeking the next Nvidia-like growth. Hence, recognizing Marvell as a stable blue-chip semiconductor stock rather than a hypergrowth AI play is vital for investors.

Is Investing in Marvell Technology Worthy?

Prior to diving into Marvell Technology stocks, it’s wise to consider this:

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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