Artificial Intelligence (AI) Helped NvidiaIt is (NVDA -1.81%) Stocks have seen meteoric gains in 2024, with shares of the semiconductor giant up more than 183% at the time of writing, but it appears investors now have doubts about the company’s ability to company to maintain its breathtaking growth rate over the long term.
That’s likely why Nvidia stock fell despite better-than-expected numbers and guidance last month. The company’s revenue for the third quarter of fiscal 2025 increased an impressive 94% from last year to $35.1 billion, while profits jumped 103 % year over year to reach $0.81 per share.
However, Nvidia’s revenue forecast of $37.5 billion for the current quarter suggests that its top line is on track to grow at a relatively slower pace of 70% from the year-over-year quarter. last. Additionally, the margin pressure the company will face in the near term due to the rollout of its Blackwell processors appears to have shaken investor confidence.
Of course, Nvidia can overcome these challenges and deliver more gains to investors. However, those who missed Nvidia’s rally and are looking for a relatively cheaper AI stock that isn’t trading at a hefty 31x sales price may consider taking a closer look. Marvell Technology (MRVL 0.12%). Let’s look at the reasons.
Marvell’s business takes off thanks to AI
Marvell Technology reported its third quarter fiscal 2025 results (for the three months ended November 2) on December 3. The chipmaker’s total revenue rose 7% year over year to $1.52 billion, which was above consensus expectations of $1.46 billion. Its non-GAAP (adjusted) earnings increased to $0.43 per share from $0.41 per share a year ago, once again beating the consensus estimate of $0.41.
You may be wondering why Marvell could be a good alternative to Nvidia given its slow growth, but a closer look at the company’s data center business will reveal the true picture. The data center segment generated 73% of Marvell’s revenue last quarter, up from 39% a year earlier. The segment’s revenue nearly doubled year over year to $1.1 billion, offsetting sharp declines the company saw in other segments such as enterprise networks, operator infrastructure, automotive/industrial and consumer goods.
The good news is that the strength of Marvell’s data center business, which benefits from growing demand for custom AI processors and optical networking equipment, will be enough to accelerate the company’s growth over the course of of the current quarter. This is evident in Marvell’s fourth-quarter revenue forecast of $1.8 billion, which would be up 26% from the year-ago period. Analysts would have been happy with Marvell’s revenue of $1.65 billion for the current quarter.
Additionally, the chipmaker expects earnings to reach $0.59 per share in the current quarter, which would translate to a 28% increase from the same period last year . Marvell CEO Matt Murphy noted during the latest earnings conference call that stronger-than-expected demand for its custom AI processors played a central role in its better-than-expected performance and robust guidance.
Marvell management believes it will “significantly exceed the annual AI revenue target of $1.5 billion.” The chipmaker expects $2.5 billion in AI chip sales in the next fiscal year, although analysts estimate its AI-focused revenue could reach $3 billion next year.
It’s easy to see why analysts expect the strong growth in Marvell’s AI business to continue. After all, the company is one of two main designers of custom chips developed by major cloud computing providers to reduce their dependence on Nvidia by developing chips in-house. These cloud companies are turning to Marvell and Broadcom for the design of their internal chips.
Reuters reports that the custom AI chip market could be worth an impressive $45 billion by 2028, up from around $10 billion this year. Meanwhile, the company sees an additional $26 billion revenue opportunity in data center switching and interconnection by 2028, powered by AI. So it won’t be surprising to see Marvell deliver much stronger revenue and profit growth in the next fiscal year and beyond.
Stronger growth could lead to a rise in its stock price
Based on Marvell’s fourth-quarter fiscal guidance, the company is on track to finish fiscal 2025 with revenue of $5.75 billion. That would represent an increase of just 4% from fiscal 2024 levels. Its earnings are on track to hit $1.56 per share for the full year, a 3% increase from the previous financial year.
Analysts, however, expect much stronger growth in fiscal 2026 (which begins in February next year and coincides with 11 months of the 2025 calendar).
MRVL revenue estimates for the next fiscal year data by Y Charts
Revenue forecasts for the 2026 financial year point to an increase of 31%, while the bottom line will increase by an impressive 63%. Of course, it won’t be surprising to see analysts raise their estimates following Marvell’s latest quarterly report.
However, even if Marvell manages to achieve $7.5 billion in revenue next year and trades at 16 times sales at that time, its market cap could reach $120 billion. This would represent a 43% increase from current levels. However, the market has rewarded companies like Nvidia with a much higher sales multiple of 31.
If something similar happens with Marvell and the company manages to generate stronger growth in 2025, it might be able to generate much larger gains than what is projected above.
Harsh Chauhan has no position in any of the securities mentioned. The Motley Fool Ranks and Recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.