Marvell Technology MRVL released its fiscal first-quarter earnings report on May 29. Here’s Morningstar’s take on Marvell’s earnings and stock.
Key Morningstar Metrics for Marvell Technology
What We Thought of Marvell Technology’s Earnings
Marvell’s April-quarter results were in line with management guidance, including revenue rising by 63% year over year and 4% sequentially to $1.90 billion. July-quarter guidance calls for sequential growth of 6%, to Marvell’s first-ever quarterly revenue of $2 billion.
Why it matters: Marvell’s artificial intelligence chip sales continue to drive impressive growth. We don’t share market concerns over potential lost business for its custom AI accelerators with Amazon and Microsoft and retain our long-term confidence in a rapid and long-term growth runway for Marvell’s AI portfolio.
- Marvell is designed into Trainium2 (Amazon) and Maia (Microsoft), and management was adamant about strong placement into follow-on generations (Trainium3 and Maia 2) with both customers, which we believe. We see Marvell’s design prowess allowing it to retain these chip designs.
- We do expect custom accelerators to be multisourced in the long term, given immense customer demand and a desire to avoid vendor lock-in. We believe this may be happening with Amazon and Microsoft, but we don’t expect this to dent Marvell’s growth from these customers.
The bottom line: We maintain our $90 fair value estimate for narrow-moat Marvell and see our long-term thesis for robust growth from custom silicon and optical chips for data centers and AI intact. Shares look attractive to us.
- Marvell stock is down 50% since late January, with rising concerns over Alchip winning over the Trainium3 socket from Marvell. We believe this is a multisourcing dynamic and think shares reflect overly pessimistic growth assumptions for Marvell’s custom chip business.
Coming up: Marvell is hosting a webinar centered around its custom AI chip business on June 17, which we expect to be a positive catalyst for the stock. We believe further detail on Marvell’s customer engagement and updated addressable market estimates will serve to relieve investor worries.
Fair Value Estimate for Marvell Technology
With its 4-star rating, we believe Marvell stock is undervalued compared with our long-term fair value estimate of $90 per share, which implies a fiscal 2026 price/adjusted earnings of 30 times and an enterprise value to sales of 10 times, along with a 3% free cash flow yield. The primary driver of our valuation is growth in data center revenue.
We anticipate the data center to remain Marvell’s largest end market, and it is the primary driver of our forecast with a 26% compound annual growth rate through fiscal 2030. We estimate Marvell to gain significant wallet share at customers as cloud customers increasingly adopt higher levels of custom chip and optical content to advance to higher speeds efficiently. We think Marvell will be a significant beneficiary of AI spending with its leadership in optical chips and custom chip design abilities. AI contributes meaningfully to our growth forecast for data center revenue, having exited fiscal 2025 at over half of segment revenue.
Read more about Marvell Technology’s fair value estimate.
Economic Moat Rating
We assign Marvell a narrow economic moat rating. In our view, Marvell holds intangible assets in networking chip design that enable it to compete at the cutting edge and defend its competitive position from well-capitalized competition, and also benefits from switching costs. We expect Marvell to earn excess returns on invested capital, more likely than not, over the next 10 years.
To us, intangible assets in networking chip design come in the form of engineering expertise, both in terms of silicon design and integration with complementary hardware and customer networking topologies, which results from decades of development, R&D expense, and engraved customer relationships. In our view, Marvell’s billions of dollars of cumulative R&D over the past decade have created a portfolio of differentiated intellectual property from which it can draw to build custom and semi-custom designs for myriad applications and customers.
Read more about Marvell Technology’s economic moat.
Financial Strength
We expect Marvell to focus on deleveraging with its free cash flow. As of January 2025, the firm carried $948 million in cash and $4.1 billion in total debt—largely taken on to acquire Inphi in calendar 2021. We expect Marvell to stay leveraged but to pay down debt as it matures. We forecast the firm’s free cash flow generation to ramp up past $3 billion a year by fiscal 2030, up from $1.4 billion in fiscal 2025, as it expands the top line. We think Marvell will fund obligations and organic investment with cash flow and have enough left over for share repurchases on top of its steady dividend. Marvell also has a $750 million revolver available if it encounters a liquidity crunch.
Read more about Marvell Technology’s financial strength.
Risk and Uncertainty
We assign a High Uncertainty Rating to Marvell. We view the firm as prone to cyclicality in its end markets, arising from cloud capital expenditures, 5G buildouts, and the cyclical storage drive market. Though we believe Marvell’s moat and content growth opportunity help it to smooth over some cyclicality, it can be vulnerable to downturns in end customer spending.
We foresee Marvell facing continued competition in its end markets, from well-capitalized competitors. Our valuation assumes an ability for Marvell to defend its current share in data centers and 5G networks, and win greater wallet share at customers with its processors and optical chips. We also forecast increased investment to help Marvell win back share in its enterprise end market against Broadcom AVGO.
Read more about Marvell Technology’s risk and uncertainty.
MRVL Bulls Say
- Marvell’s strong position in optical chips and its burgeoning custom chip business offer a strong foothold into generative AI infrastructure, which should fuel high growth.
- Marvell’s strong non-GAAP profitability reflects moaty pricing power, in our view.
- We believe Marvell’s wide portfolio of switches, processors, and optical chips gives it ample opportunity for cross-selling and share gains.
MRVL Bears Say
- Marvell remains a distant second to Broadcom in networking chip market share, and it will face an uphill battle overcoming its customer relationships.
- Marvell’s end markets are cyclical and can be prone to downturns.
- Marvell still has a solid portion of sales going into storage drives, which we think are less differentiated.
This article was compiled by Gautami Thombare.
