Artificial intelligence (AI) has helped with this Nvidia‘S (NASDAQ: NVDA) The stock clock is seeing stellar gains through 2024, with the semiconductor giant’s shares up more than 183% at the time of writing, but it appears investors are now questioning the company’s ability to maintain its stunning long-term growth rate to hold.
This is likely why Nvidia stock has pulled back despite delivering better-than-expected numbers and guidance last month. The company’s revenue for the third quarter of fiscal 2025 rose a whopping 94% from the year-ago period to $35.1 billion, while earnings rose 103% year-over-year to $0.81 per share.
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However, Nvidia’s revenue guidance of $37.5 billion for the current quarter suggests that revenue is on track to increase at a relatively slower pace of 70% from last year’s quarter. Furthermore, the margin pressure the company will face in the near term as a result of the rollout of its Blackwell processors appears to have eroded investor confidence.
Of course, Nvidia can overcome these challenges and deliver more profits to investors. Those who missed Nvidia’s rally and are looking for a relatively cheaper AI stock that doesn’t trade at an expensive 31 times top line might consider taking a closer look at Marvell technology(NASDAQ:MRVL). Let’s look at the reasons why.
Marvell Technology announced its third quarter fiscal 2025 results (for the three months ended November 2) on December 3. The chipmaker’s total revenue rose 7% year over year to $1.52 billion, exceeding the consensus estimate of $1.46 billion. Non-GAAP (adjusted) earnings rose to $0.43 per share from $0.41 per share in the same period last year, again beating the consensus estimate of $0.41.
You may wonder why Marvell is a good alternative to Nvidia given its slow growth rate, but a closer look at the company’s data center business will reveal the true picture. The data center segment produced 73% of Marvell’s revenue last quarter, compared to 39% in the same period a year ago. The segment’s revenue nearly doubled year-over-year to $1.1 billion, offsetting steep declines the company saw in other segments such as enterprise networking, carrier infrastructure, automotive/industrial and consumer.
The good part is that the strength of Marvell’s data center business, which benefits from growing demand for custom AI processors and optical networking equipment, will be enough to take the company’s growth to the next level in the current quarter. That’s reflected in Marvell’s fiscal fourth-quarter revenue guidance of $1.8 billion, which would be a 26% increase from the same period a year ago. Analysts would have settled for Marvell’s revenue of $1.65 billion for the current quarter.
Additionally, the chipmaker expects current quarter earnings to come in at $0.59 per share, which would translate to a 28% increase over the same period last year. Marvell CEO Matt Murphy pointed out during the latest earnings conference call that stronger-than-expected demand for its custom AI processors played a central role in the better-than-expected performance and robust guidance.
Marvell management believes it will “significantly exceed its full-year AI revenue target of $1.5 billion.” The chipmaker forecasts sales of $2.5 billion in AI chips in the next fiscal year, although analysts believe its AI-focused sales could rise to $3 billion next year.
It’s easy to see why analysts expect the strong growth of Marvell’s AI-related business to continue. After all, the company is one of two major designers of custom chips, which are being developed by major cloud computing providers to reduce their dependence on Nvidia by developing their own chips. These cloud companies are turning to Marvell and Broadcom for designing their own chips.
Reuters reports that the market for custom AI chips could be worth as much as $45 billion by 2028, up from an estimated $10 billion this year. Meanwhile, the company sees an additional $26 billion in data center switching and interconnection revenue opportunity by 2028 thanks to AI. So it should come as no surprise that Marvell will deliver much stronger revenue and profit growth in the coming fiscal year and beyond.
Based on Marvell’s fourth-quarter guidance, the company is on track to complete fiscal 2025 with $5.75 billion in revenue. That would be an increase of just 4% from fiscal 2024. Earnings are on track to reach $1.56 per share for the full year, up 3% from the previous fiscal year.
However, analysts expect much stronger growth in the 2026 financial year (which will start in February next year and coincide with the eleven months of calendar 2025).
MRVL revenue estimates for next fiscal year data according to YCharts
The top-line forecast for fiscal 2026 points to a 31% increase, while the bottom line will rise by as much as 63%. Of course, it won’t be a surprise that analysts will upgrade their estimates following Marvell’s latest quarterly report.
But even if Marvell manages to reach $7.5 billion in sales next year and is trading at 16 times sales at that time, its market cap could reach $120 billion. That would be an increase of 43% from current levels. However, the market has rewarded companies like Nvidia with a much higher sales multiple of 31.
If something similar happens with Marvell and the company manages to achieve stronger growth in 2025, it could potentially post much stronger profits than forecast above.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
Missed Nvidia? Buy this beautiful artificial intelligence (AI) stock before it rises at least 43% in 2025. was originally published by The Motley Fool
