Analysts reset price targets for surging Nvidia rival after earnings

Friday, 6 December 2024

Analysts reset price targets for surging Nvidia rival after earnings

by BD Banks

Anything related to AI chips can stir market sentiment these days. And while Marvell Technology might not be a Marvel superhero, its Q3 performance certainly caught investors’ attention.

Shares of Marvell (MRVL) surged 23% on Dec. 4 after the chipmaker reported strong results and upbeat guidance, as demand for artificial intelligence drove up data-center sales.

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Data-center sales in the recently reported October quarter nearly doubled (up 98%) year-over-year and moved up 25% sequentially, reaching $1.1 billion.

Marvell CEO Matt Murphy said during the earnings call that the company’s AI revenue was expected to exceed $1.5 billion in the current fiscal year and $2.5 billion in 2025.

The data-center segment’s contribution to Marvell’s total revenue increased to 73% in the latest quarter from 39% in the year-earlier period.

Morningstar analyst William Kerwin expects similar sequential growth for the segment in the upcoming January quarter.

Marvell shares have more than doubled year-to-date.

Marvell

Can Marvell see a Nvidia-like growth?

Marvell reported earnings of 43 cents for its fiscal Q3 ended in October, topping Wall Street’s estimate of 41 cents.

Revenue rose 19% quarter-over-quarter to $1.52 billion, beating forecasts of $1.46 billion and “well above the midpoint of our guidance,” Murphy said in a statement.

Marvell now expects Q4 revenue of $1.8 billion and cash earnings of 59 cents a share, both above analysts’ forecasts.

“For the fourth quarter, we are forecasting another 19% sequential revenue growth at the midpoint of guidance, while year-over-year, we expect revenue growth to accelerate significantly to 26%, marking the beginning of a new era of growth for Marvell,” said Murphy.

The company recently announced a five-year partnership with Amazon Web Services (AMZN) to scale its Trainium AI chips and other custom computing solutions.

Marvell said the collaboration aims to improve efficiency and reduce costs for AWS and its customers, reflecting the need for hyperscalers (the big cloud-infrastructure and -services providers) to diversify their AI hardware.

Most AI training is currently performed on Nvidia’s (NVDA) pricey graphics-processing units, but rising costs and supply constraints have pushed cloud providers to explore alternatives.

Marvell does face a steep challenge in scaling its AI business to rival Nvidia’s dominance. According to Bank of America analyst Justin Post, Amazon spent more than $20 billion on Nvidia chips, compared with $1 billion to $2 billion on Marvell’s offerings, Forbes reported.

Analysts boost stock price targets for Marvell after earnings

Analysts raised their stock price targets on Marvell after the earnings release.

Benchmark raised Marvell’s stock price target to $135 from $115 and affirmed a buy rating, saying the Santa Clara, Calif., company “delivered a solid 3Q print and gave an equally encouraging outlook,” thefly.com reported.

The investment firm says Marvell offers “a unique non-Nvidia alternative to gain leverage to the AI/data center trade.”

Bank of America analyst Vivek Arya lifted his price target to $125 from $108, maintaining a buy rating.

Marvell “presents a unique investment in AI electro-optics and custom chips” and could drive about 40% to 50% annual earnings-per-share growth for the next several years, the analyst says.

Citi raised Marvell’s price target to $112 from $91, also keeping a buy rating. Beyond the company’s “strong beat-and-raise” quarter, Citi highlighted Marvell’s partnership with AWS, which includes scaling the Trainium chip with a 30%-40% advantage in price and performance.

Citi has named Marvell its top pick for custom application-specific integrated circuits through 2025.

At the same time some analysts took a cautious view of Marvell stock, arguing that the stock’s valuation is high. The forward price-to-earnings multiple on Marvell stock is 38.31 as of Dec. 4, exceeding Nvidia’s 32.89, according to Yahoo Finance data.

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Morgan Stanley raised its price target for Marvell to $102 from $82, maintaining an equal weight (effectively neutral) rating.

The firm cited strong momentum from Trainium 2 chip builds for Amazon as a key driver of Marvell’s strong results. But it also flagged the stock’s valuation and potential headwinds in 2026 as reasons for its neutral stance.

Marvell closed at $118.15 on Dec. 4. The shares have more than doubled year-to-date.