Artificial intelligence (AI) helps Nvidia do business (NASDAQ:NVDA) 2024 will see a big jump in stock prices, with the semiconductor giant’s stock up more than 183% as of this writing, but investors are now betting on the company’s ability to maintain impressive growth rates over the long term. He seems to have doubts.
Perhaps this is why NVIDIA stock fell despite releasing better-than-expected numbers and guidance last month. In the third quarter of fiscal 2025, the company’s revenue increased 94% year-over-year to $35.1 billion, and earnings increased 103% year-over-year to $0.81 per share.
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However, NVIDIA’s current quarter revenue guidance of $37.5 billion suggests that its revenue is on track to grow at a relatively slow 70% year-over-year pace. Additionally, the margin pressure the company will face in the near term with the rollout of Blackwell processors appears to be hurting investor confidence.
Of course, Nvidia can overcome these challenges and bring more returns to investors. However, if you missed the NVIDIA rally and are looking for a relatively cheap AI stock that doesn’t trade at a pricey 31x, you may want to consider taking a closer look at Marvell Technologies. Is it? (NASDAQ:MRVL). Let’s see why.
Marvell Technology announced its financial results for the third quarter of fiscal year 2025 (three months ending November 2) on December 3. The company’s total revenue was $1.52 billion, up 7% year over year, beating the consensus estimate of $1.46 billion. Non-GAAP (adjusted) earnings increased to $0.43 per share from $0.41 in the year-ago period, also beating the consensus estimate of $0.41.
You might wonder why Marvell is a good alternative to Nvidia given its slow pace of growth, but a closer look at the company’s data center business reveals the true picture. The data center division produced 73% of Marvell’s revenue last quarter, up from 39% in the year-ago period. The segment’s revenue nearly doubled year-over-year to $1.1 billion, offsetting significant declines seen in other segments such as enterprise networking, carrier infrastructure, automotive/industrial and consumer.
The good news is that the strength of Marvell’s data center business, which is benefiting from growing demand for custom AI processors and optical networking equipment, should be enough to further boost the company’s growth this quarter. That’s evidenced by Marvell’s fourth-quarter fiscal year revenue guidance of $1.8 billion, which would represent a 26% year-over-year increase. Analysts would have expected sales from Marvel to be $1.65 billion in the current quarter.
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Additionally, the company expects its current quarter earnings to be $0.59 per share, which would represent an increase of 28% from the year-ago period. Marvell CEO Matt Murphy noted in the company’s latest earnings call that stronger-than-expected demand for its custom AI processors played a central role in the company’s better-than-expected performance and solid guidance.
Marvell management believes it will “significantly exceed our full-year AI revenue target of $1.5 billion.” The company expects AI chip sales to be $2.5 billion next year, but analysts believe the company’s AI-focused sales could reach $3 billion next year.
It’s easy to see why analysts expect strong growth in Marvell’s AI business to continue. After all, the company is one of two leading designers of custom chips that major cloud computing providers are developing to reduce their dependence on Nvidia by developing their own chips. These cloud companies rely on companies like Marvell and Broadcom to design their chips.
The market for custom AI chips could reach a staggering $45 billion by 2028, compared to an estimated $10 billion this year, according to a Reuters report. Meanwhile, the company expects to see $26 billion in additional revenue opportunities in data center switching and interconnect by 2028 thanks to AI. So it wouldn’t be surprising to see Marvell achieve even stronger revenue and profit growth next year and beyond.
Based on Marvell’s fourth quarter financial guidance, the company is expected to finish fiscal year 2025 on track with revenue of $5.75 billion. The increase will be only 4% compared to FY2024. Full-year earnings are expected to reach $1.56 per share, an increase of 3% from a year ago.
But analysts expect even stronger growth in fiscal year 2026, which begins next February and coincides with the 11th calendar month of 2025.
MRVL revenue forecast data for next fiscal year by YCharts
Top-line projections for fiscal 2026 point to a 31% increase, while the bottom line will increase by a whopping 63%. Of course, it wouldn’t be surprising if analysts raised their estimates following Marvell’s latest quarterly report.
But even if Marvel hits $7.5 billion in sales next year and trades at 16 times sales at that point, its market cap could reach $120 billion. This would represent a 43% increase from current levels. But the market gave the likes of Nvidia a much higher sales multiple of 31x.
If something similar happens with Marvell, and the company can achieve even stronger growth in 2025, it could achieve much higher profits than the forecasts above.
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
Missed Nvidia? Buy this great artificial intelligence (AI) stock before it soars at least 43% in 2025. The original article was published by The Motley Fool.
