Marvell Technology, which achieved its target price ahead of schedule, is being brought on a new platform by AI?

Marvell Technology (MRVL)$ is a semiconductor company founded in 1995 and headquartered in Silicon Valley with an R&D center in Shanghai, China. Marvell Technology provides a full range of broadband communications and storage solutions and is one of the top 10 fabless semiconductor design companies in the world.

Marvell Technology offers a broad product portfolio spanning embedded processors, switches, microcontrollers, PHY transceivers, storage and wireless solutions designed to revolutionize the enterprise, cloud, automotive, industrial and consumer markets. The company ships more than one million ARM architecture-based processors every day, including not only mobile application processors, but also communication processors, storage, WiFi and other chips.

In addition, the company also began reducing costs and increasing efficiency in 2022, having made massive layoffs in China in October, with the Shanghai R&D center being the hardest hit. in March 2023, industry sources broke the news that Marvell had decided to lay off the entire remaining China R&D team.

Q1 results overview - bottoming out?

Total revenues of $1.32 billion, down 9% year-over-year, due to a higher base last year;

In the carrier business, 5G has entered maturity and the Indian market has become a focus for 2023, with a possible downside in the overall business but other opportunities; in the enterprise network business, growth is likely to be more subdued, with de-stocking the main line for the next few quarters.

However, AI presents opportunities for the company to change the investment priorities of its cloud customers.

GAAP gross margin of 42.2%; Non-GAAP gross margin of 60.0%;

GAAP diluted EPS was -$0.20; Non- GAAP diluted EPS was $0.31.

The CAGR of the company's AI business revenue was 100%.

Performance Outlook

FY23 revenue CAGR of 25% and AI business revenue of approximately $200 million, driven primarily by PAM4 and 400ZRDCI products;

FY24 expects the AI business to double to $400 million and to double to $800 million in FY2025 with an AI data center architecture that differs from the standard cloud data center architecture, with generative AI implementations involving video and images expected to support overall storage and EB-level growth in HDD and Flash. The next generation of gas pedals with higher compute power and higher bandwidth requirements are expected to be a major requirement for DSP platforms.

Marvell's direct AI-related factors will double in FY2025, but there is currently unquantifiable indirect demand for its storage solutions.

AI infrastructure is evolving at such a rapid pace that the technology refresh cycle is changing in 18 to 24 months, as opposed to more than 4 years for standard infrastructure.

Valuation levels and share price

After the last earnings report, the bulls started to undercut, so MRVL shares have remained at the lows formed in January 2023, a price that long-term investors may find attractive.

When Q1 earnings were released (FY24), more investors flocked to the stock due to the AI concept carried by NVDA, and MRVL shares "rocketed" up vertically as management significantly increased AI-related revenue forecasts and fueled optimism among investors and analysts about future prospects.

Valuation-wise, the market consensus expects a price target of around $60 (2023-2024), with an implied forward P/E (PE TTM) of 28-30x.

However, if the revenue from the AI side reaches the height of management's expectations and also further boosts the company's margins, the $60 target price corresponds to a PE below 25x now.

Compared to $Nvidia (NVDA)$ it is very cheap and at the same time the market optimism is justified as Marvell is benefiting from the data center windfall and is a leader in this industry.

AI-related stock price volatility is currently low by earnings and high by market sentiment, and MRVL will continue to have greater volatility than ever in the near term, as will the rest of AI.