What happened
Shares of chip stock Marvell Technology (MRVL 0.78%) rallied 61.4% in the first half of 2023, according to data from S&P Global Market Intelligence .
Marvell actually had quite a subdued January through April, but shares exploded higher in late May. That's when Nvidia issued blowout guidance for the current quarter, which seemed to validate much of the AI hype that has grown since the introduction of AI chatbot ChatGPT last November. Marvell also reported its own earnings a day later, with management making bullish comments on its own AI growth prospects.
While its current financials are underwhelming, Marvell has acquired a portfolio of electro-optical, Ethernet, and application-specific integrated chip (ASIC) technology over the past few years, which positions the company to benefit nicely to benefit from the rise of AI. But has the stock run too far, too fast?
NASDAQ: MRVL
Key Data Points
So what
The rise in ultra-fast, high-capacity GPU-based servers for AI will also require a massive investment in networking, as large numbers of high-capacity switches and optical communications processors will be needed to quickly transmit huge amounts of data, both within and between AI data centers.
On the networking side, those investments should benefit Marvell's PAM4 digital signal processing (DSP) interfaces for lighting-quick data transmission at speeds of 800 Gbps and above, along with its data center interconnect products and Teralynx 10 Ethernet switching platforms.
In addition to networking, Marvell also has a growing ASIC business, in which Marvell collaborates with third parties to design custom chips built for a specific purpose. Aside from the large generalized GPU accelerator companies, leading cloud providers are now designing custom ASICs for AI as an alternative, and Marvell is set to benefit from the growth of these types of custom AI ASICs as well.
In early June, JPMorgan Chase analyst Harlan Sur issued a bullish note on Marvell, identifying that it has about 15% of the custom ASIC market -- a market that Sur projects will grow 20% annually over the medium term.
That optimism appeared validated just one week later, when the Taiwan-based Liberty Times reported that Marvell had won a new ASIC contract with Amazon Web Services for Amazon's next-generation accelerators.
Now what
Overall, Marvell noted on its May 25 conference call it expects AI-related revenue to at least double this year, and then double again next year. That fueled optimism over Marvell's future, despite the fact that its AI-related revenue only made up roughly 3% to 4% of business today.
With the AI segment apparently primed for multiyear hypergrowth and the potential for a recovery in the other core businesses, Marvell's stock soared in 2023's first half.
Still, I'd remain cautious on buying Marvell today after its strong run. The company is still only operating around breakeven, with lackluster total-company growth. So if Marvell delivers anything other than strong growth in the quarters ahead, the stock could pull back. That being said, it's certainly an AI name to watch over the medium and long term.
