Marvell Technology (MRVL), a leading semiconductor company specialising in data infrastructure solutions, has been attracting attention from investors. A recent bullish thesis published on ValueInvestorsClub suggests significant upside potential for the company's shares. This article explores the key arguments behind this optimistic outlook.
Marvell's core business revolves around networking, storage, and custom ASIC chips, serving a wide range of markets including data centres, telecommunications, enterprise networking, automotive, and industrial applications. The company boasts a strong client base, including industry giants like Amazon and Google. While Marvell currently holds a 15-20% share of the custom ASICs market, it lags behind Broadcom (AVGO) which dominates with a 50-60% share.
The rise of artificial intelligence (AI) is a key driver for Marvell's growth potential. AI applications are demanding high-performance networking capabilities, creating a need for advanced semiconductors. Marvell's comprehensive end-to-end networking portfolio, including its market-leading optical DSPs acquired through the 2021 Inphi acquisition, positions the company to benefit from this trend. The company's dominance in PAM4 optical DSPs, essential for reducing networking bottlenecks, is expected to drive significant revenue growth as AI deployments accelerate.
Further contributing to Marvell's bullish narrative is the increasing shift towards custom silicon (ASICs) tailored for specific applications, a direct consequence of Moore's Law slowing down. Marvell's custom ASIC business, leveraging its extensive intellectual property portfolio and advanced SerDes technology, is well-positioned to capitalize on this trend. Strong demand from major customers like Amazon and Google has already propelled this segment, with projected revenues of £1.2-1.6 billion by 2026.
Marvell's cyclical end markets, including Enterprise Networking, Carrier Infrastructure, and Storage, are also showing signs of recovery. These segments, which account for 50% of Marvell's business, are expected to rebound, contributing to the company's overall earnings growth. As these markets improve, they will provide an additional boost to Marvell's financial performance, supporting projected earnings per share (EPS) growth and a subsequent increase in stock value.
With an anticipated EPS of £3.20-3.60 in 2026 and a conservative price-to-earnings (P/E) multiple of 25x, Marvell's stock could experience a 50-70% upside. The downside risk is considered limited, with normalized earnings and a lower P/E multiple still aligning closely with the current share price.
While Marvell presents a compelling investment case, the article also acknowledges the potential of AI stocks offering faster and potentially higher returns. It suggests exploring alternative AI investments that may offer comparable growth potential but at a lower valuation.
In conclusion, Marvell Technology appears well-positioned to benefit from the growing demand for advanced networking and custom silicon solutions, particularly fueled by the rise of AI. While its cyclical end markets are recovering, the company's comprehensive portfolio and strong client relationships present a compelling case for long-term growth. However, investors should also consider the potential of other AI-focused investments that may offer faster returns.