Marvell Technology (MRVL) carries CFRA’s highest investment rating of 5-STARS, or Strong Buy, explains equity analyst Angelo Zino in CFRA Research's flagship newsletter, The Outlook.
Our recommendation reflects our outlook for improving trends in the coming quarters and AI opportunities. We see greater AI momentum as adoption for generative AI/language learning models grows. MRVL’s custom silicon business could rival its optics business in the next three years.
We think customer inventories across all markets appear to be normalizing and confidence is improving, which should drive a 2H recovery. All said, a recovery in cyclical businesses, plus strong AI momentum, has the ability to drive upside to consensus expectations.
The company presents revenue from five end markets: data center, carrier infrastructure, enterprise networking, consumer, and automotive/industrial. AI revenue is driving data center upside, and we think its pipeline offers upside, given opportunities tied to its optics business and initial revenue ramp from its silicon compute customers.
Despite ongoing struggles in non-AI-related business, we finally believe these businesses are set to bottom in Apr-Q at extremely depressed levels, with pronounced sequential declines expected in the current quarter within carrier, enterprise networking, and consumer. This is on top of sharp declines that were seen in both carrier and enterprise networking the prior quarter.
As customers continue to shift investment from traditional to accelerated infrastructure, we expect data center to drive the majority of MRVL’s revenue growth going forward. AI was a key driver of the company’s data center growth in FY 2024, contributing over 10% of total company revenue, well above the 3% in the prior year.
MRVL’s momentum accelerated throughout the fiscal year, with AI revenue well over $200 million in Q4, driven mostly from optics. In FY 2025, we expect this trend to continue driving another strong year for MRVL’s data center end market, driven by both its custom silicon AI business and optics business.
MRVL has an opportunity to address compute and AI through its cloud optimized silicon platform. Today, we see cloud customers enhancing their AI offerings by building custom accelerators of their own design to address their specific needs. This is a core part of MRVL’s cloud optimized silicon strategy, and we now see a much larger and faster-growing opportunity for custom compute and AI infrastructure.
We think MRVL’s valuation is enticing from a historical perspective and given growth opportunities attached to the company. Our 12-month target is $94 on a P/E of 34.8x our CY 2025 EPS view, above peers, but comparable to its three- and five-year forward historical averages of 30.3x and 33.7x, respectively. We forecast operating EPS of $1.82 for FY 2025 and $2.70 for FY 2026.
Risks to our view include slower-than-expected growth in core markets like data centers and carrier infrastructure, narrower-than-expected margins, and rising competition. Although we expect easier comparisons following a inventory correction, macroeconomic concerns may cause any upswing in 2H 2024 to be short lived.
