There’s no denying this technological powerhouse Nvidia(NASDAQ: NVDA) has been the center of the artificial intelligence (AI) movement thus far.
The processors are the heart and soul of most data centers. The stock has been driving out the market as a whole since early 2023, when the artificial intelligence revolution hit full speed. Shares are up more than 800% in this two-year period versus S&P500′s 58% deposit for the same time frame.
But as always, things change. Competition is creeping in. Technology evolves. Customers begin to think about more specific solutions to their unique challenges, and investors’ euphoric interest in the stock of an industry leader is fading.
Anyone considering taking or holding a stake in Nvidia might instead consider one of the tech industry’s other top growth prospects: Marvell technology(NASDAQ:MRVL).
Not familiar with it? You’re not alone. Its sub-$100 billion market cap doesn’t attract much attention, especially compared to Nvidia’s $3 trillion market cap. Marvell also hasn’t exactly caught the attention of many hedge funds and money managers who often have their finger on the pulse of the proverbial “next big thing.” The Motley Fool’s recent look at the hedge fund holdings of 16 different billionaires shows that the company doesn’t hold a significant position for any of them — but maybe it should.
Marvell isn’t a top-of-mind name for investors looking for a new way to tap into the artificial intelligence movement. However, it has been there quietly all this time. This company makes everything from data center switches to hard drive controllers and computer processors that you don’t hear much about but would definitely notice if they didn’t exist. Its technology can be found in 5G connectivity equipment, cars and, perhaps most noticeably, AI data centers that increasingly require entire walls of motherboards to work together as one big digital brain.
For example, earlier this week the company unveiled its new Aquila DSP (digital signal processor), which can process 1.6 trillion bits of digital data every second. This energy-efficient technology can be used in densely packed data centers with up to 20 kilometers of connectivity wiring. That’s why technology market research firm Dell’Oro Group believes the market for this new type of data center processor will grow by an average of 200% per year over the next five years.
That’s just one of the types of technologies Marvell makes. Also earlier this week, the company announced a design breakthrough for high-bandwidth memory modules (or HBM). This solution should provide AI platforms with 25% more computing power than comparable systems currently have, without taking up additional space. Mordor Intelligence believes this better-developed global HBM market will grow nearly 26% annually through 2029.
Nvidia’s processors are certainly workhorses. However, as artificial intelligence begins a new chapter, the technology these AI processors are attached to will also need to be next-generation. Marvell Technology leads this stealthy attack.
For better or worse, Marvell’s growth prospects are increasingly reflected in its share price. Shares are up more than 200% since the end of 2022, with roughly half of those gains not being realized until the middle of this year, when research and development efforts – along with the need for them – took center stage.
The big run-up looks like a tough act to follow, leaving the stock price at a frothy 40 times next fiscal year’s expected earnings per share of $2.76. However, this is probably one of those cases where any significant dip is a buying opportunity.
While such a valuation is seemingly sky-high compared to the market as a whole, that’s not the way legendary growth stocks trade today. Such stocks can maintain or even increase a steep premium based not on next year’s likely earnings, but rather on the company’s plausible earnings five or even ten years down the road.
There is little doubt that Marvell Technology is well positioned to capture at least its fair share of the expected growth of the AI technology market. As Benchmark analyst Cody Acree explained his recent increase in the company’s target price for the stock: “Marvell is one of only two custom silicon suppliers providing NVDA GPU competitive accelerators to three of the industry’s largest hyperscale data center companies , of Amazon and Google has contracted Marvell to co-develop custom accelerators uniquely tailored to their specific AI workloads.”
Acree adds to its optimistic statement: “After years of engagement, development and qualification, these processors are currently rising with volume production revenues, which, combined with the strong increase in optical connectivity, would put Marvell on track to ‘well-outperform’ the targets for AI at $1.5 billion and $2.5 billion for AI respectively.
Data source: StockAnalysis.com. Chart by author.
He is certainly not the only bull. The vast majority of the analyst community still rates Marvell stock a strong buy, despite recent huge gains.
Will billionaires, hedge funds and other institutional stock pickers ever get on board and add Marvell Technology to their portfolios? Maybe. Or maybe not. No one knows for sure.
Don’t be put off just because Marvell isn’t currently a favorite among the proverbial “big money” investors. Many of these well-known investors weren’t exactly on board with Nvidia when it first started roaring either. It may take some time for this crowd to find a new darling, and then convince itself to dive in.
If you like the stock’s underlying story and long-term risk-versus-reward scenario, buy now – even near the recently reached record peak.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions at Alphabet. The Motley Fool holds positions in and recommends Alphabet, Amazon and Nvidia. The Motley Fool recommends Marvell technology. The Motley Fool has a disclosure policy.
Should You Forget Nvidia and Buy These Tech Stocks Instead? was originally published by The Motley Fool
