The market for artificial intelligence (AI) chips is dominated by Nvidia, which is why the semiconductor giant recently announced another impressive performance for its fiscal third quarter of 2025 (ending October 27).
The company’s sales rose 94% year over year to $35.1 billion, and its strong pricing power helped its adjusted earnings more than double to $0.81 per share. However, the market’s reaction to Nvidia’s outstanding performance was muted. In fact, the stock has lost momentum and has fallen since the release of the latest report.
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One reason for this is that Nvidia’s valuation is high and there are concerns that the company’s growth trajectory may be slowing. Margin pressures that will arise from Nvidia’s rapid production ramp-up of its new generation of AI chips are probably another reason why the stock is volatile despite its impressive report.
But there’s another chip stock that isn’t as expensive as Nvidia and has seen a healthy rise over the past three months. The company is scheduled to release its next earnings report on December 3rd, and there’s a good chance the company’s results will be strong enough to give the stock a good hit.
Let’s take a closer look at this name.
Nvidia is the go-to provider of graphics processing units (GPUs) deployed in data centers for AI training and inference, but there is another chip family that is gaining acceptance in AI servers. Application-specific integrated circuits (ASICs) are custom chips that are different from GPUs.
GPUs are used for general computing purposes and can process large amounts of data in parallel, while ASICs are used to perform specific tasks. The advantage of ASICs is that because they are programmed to perform a specific task, they consume less power and can perform that task more efficiently.
Not surprisingly, the AI-specific ASIC market is expected to grow at an annual rate of 32% through 2030, according to market research firm Lucintel. One way investors can take full advantage of this market is by investing in Marvell Technology stock. (NASDAQ:MRVL)a custom chip designer who has seen a turnaround in fortunes thanks to AI.
Marvell is scheduled to release its fiscal 2025 third-quarter financial results after the market closes on December 3. The company’s stock price has risen an impressive 33% since it released its last quarterly report on August 29th. The reasons for this sharp rise are thought to be as follows. Demand for Marvell’s custom chips is growing rapidly, offsetting weak demand in other segments.
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Specifically, the chipmaker’s overall revenue in the second quarter was down 5% year over year to $1.27 billion. Non-GAAP (adjusted) earnings were $0.30 per share, down from $0.33 in the year-ago period. However, Marvell’s data center revenue rose a whopping 92% year-over-year to $881 million, overshadowing the decline in revenue and revenue.
The company expects third-quarter sales of $1.45 billion, a slight improvement from the same period last year. Consensus estimates project Marvel to end the current fiscal year with revenue of $5.54 billion, which would be roughly flat from the same period last year. Additionally, earnings are expected to decline to $1.46 per share from $1.51 per share in the prior year.
The good news is that Marvell’s sales and bottom line are expected to accelerate nicely over the next few fiscal years.
MRVL revenue forecast data for next fiscal year by YCharts
Given the health of the custom AI chip market, it’s easy to see why analysts expect Marvell to step on the gas. The company expects AI revenue to be $1.5 billion at the end of fiscal year 2025, and that number is expected to jump to $2.5 billion in fiscal year 2026. More importantly, Marvell predicts that AI will significantly expand its addressable market. The company expects the total addressable market (TAM) for data centers to surge from $21 billion in 2023 to $75 billion in 2028.
Marvell notes that $43 billion of this TAM is due to increased demand for custom computing chips. Meanwhile, an additional $26 billion will come from the data center switching and interconnection markets. It’s worth noting that Marvel is making progress in both of these areas. The company expects one-third of its AI revenue this fiscal year to come from custom computing chips, with the remainder coming from the AI-focused data center connectivity space.
More importantly, Marvell was able to acquire new customers for its AI chips. This was evident from CEO Matt Murphy’s comments on the last earnings call. “Our AI custom silicon program is progressing very well, with the first two chips now in production. We have already won new custom program development, including projects with us.” The new Tier 1 AI customers we announced earlier this year are also on track to reach key milestones. ”
So there’s a good chance Marvel will outperform expectations and end on a positive note. Currently trading at a forward P/E of 37x, this is why buying this stock before December 3rd is a smart move. That’s not too expensive considering how fast earnings are expected to grow over the next few years. .
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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 Marvell Technology. The Motley Fool has a disclosure policy.
Prediction: This artificial intelligence (AI) chip’s stock will skyrocket after December 3rd Originally published by The Motley Fool
