On Friday, BofA Securities updated its outlook on Marvell Technology (NASDAQ:MRVL), a semiconductor company, by increasing the price target to $90 from the previous $85 while maintaining a Buy rating. The revision reflects the company's advantageous position in the artificial intelligence (AI) data center sector and the strength of its electro-optics business.
The financial firm emphasized Marvell's significant market share in electro-optics, which is closely linked to the global accelerator market. This market is anticipated to experience robust year-over-year growth rates in the coming years, with projections of approximately 150% in 2024, 50% in 2025, and 20% in 2026.
The company's custom AI accelerator silicon is also seeing increased adoption, with volume production already underway at two clients and a third expected to begin in fiscal year 2027.
Marvell's comprehensive intellectual property portfolio and its range of digital signal processing and analog components position the company to capture a 10-15% share of the custom silicon total addressable market. This could translate to an annual revenue run-rate of $3-4 billion from the current projection of about $1.3-1.4 billion in fiscal year 2026.
While there are concerns about gross margin dilution due to an expanding mix of custom silicon, BofA Securities anticipates that recoveries in Marvell's non-AI businesses, such as enterprise networking and carrier, will help mitigate the impact in fiscal years 2025 and 2026.
Consequently, the firm has raised its sales estimates for Marvell for fiscal years 2025, 2026, and 2027 by 3-6% and its pro forma earnings per share by 4-9% to $1.48, $2.47, and $3.11, respectively.
The new price objective is based on a valuation multiple of 37 times the projected earnings for calendar year 2025, which corresponds to 1.3 times growth. This valuation is within the typical range for high-growth semiconductor peers, which usually falls between 1 and 2 times growth.
In other recent news, Marvell Technology Group Ltd . has reported robust financial results, surpassing expectations with Q2 revenue figures of $1.27 billion. KeyBanc, TD Cowen, Stifel, and Piper Sandler have all maintained positive ratings on Marvell, with raised price targets reflecting the company's strong performance and future prospects.
Analysts from Rosenblatt introduced a fiscal year 2027 Non-GAAP earnings estimate of $3.50 per share for Marvell, reflecting confidence in the company's growth trajectory.
Marvell's recent financial outcomes were bolstered by growth in optical networking and the ramp-up of AI custom silicon projects with major clients such as Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) Web Services.
The company's AI application-specific integrated circuit (ASIC) business is expected to leverage robust investments in artificial intelligence (AI), further bolstering Marvell's growth prospects.
These are recent developments, which also include Marvell's plans to increase stock repurchases in the third quarter and anticipated sequential growth across all end markets. The management team at Marvell expressed confidence in exceeding the firm's artificial intelligence revenue targets for fiscal years 2025 and 2026, set for January of those years, at $1.5 billion and $2.5 billion respectively. Gross margins are projected to hold steady at around 61%, as lower margins from AI custom silicon are expected to be balanced by a resurgence in the core merchant business.
InvestingPro Insights
As Marvell Technology (NASDAQ:MRVL) continues to position itself as a key player in the AI data center and electro-optics sectors, real-time data from InvestingPro provides a snapshot of the company's financial health and market performance. Marvell's market capitalization stands at $65.79 billion, reflecting significant investor confidence. Despite a challenging past year with a revenue decline of 7.72%, analysts remain optimistic about the company's prospects, as evidenced by 18 analysts having revised their earnings upwards for the upcoming period. This optimism aligns with BofA Securities' revised price target and is further supported by Marvell's commitment to shareholder returns, maintaining dividend payments for 13 consecutive years.
InvestingPro Tips highlight Marvell's ability to manage its finances prudently, with liquid assets exceeding short-term obligations and a moderate level of debt. While the company was not profitable over the last twelve months, analysts predict profitability this year, aligning with BofA's positive outlook. For investors seeking more detailed analysis, InvestingPro offers additional tips on Marvell's financials and market performance, providing an invaluable resource for making informed investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.