The artificial intelligence (AI) chip market is dominated by Nvidiawhich explains why the semiconductor giant recently posted another great set of results for the third quarter of fiscal year 2025 (which ended on October 27).
The chipmaker’s revenue rose a whopping 94% year over year to $35.1 billion, while its enormous pricing power more than doubled adjusted earnings to $0.81 per share. However, the market’s reaction to Nvidia’s excellent results was lukewarm. In fact, the stock has lost momentum and has fallen since the last report was released.
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One reason that may be the case is because of Nvidia’s expensive valuation and concerns that the company’s growth trajectory is slowing. The margin pressure that will come from the rapid increase in production of Nvidia’s next-generation AI chips is likely another reason why the stock is on shaky ground despite its impressive report.
However, there’s another chip stock that isn’t as expensive as Nvidia and has posted healthy gains over the past three months. This company will release its next set of results on December 3, and chances are its performance will be solid enough to give the stock a nice boost.
Let’s take a closer look at this name.
While Nvidia is the provider of graphics processing units (GPUs) deployed in data centers for AI training and inference, there is another family of chips that is gaining acceptance in AI servers. Application-specific integrated circuits (ASICs) are custom chips that differ from GPUs.
While GPUs are used for general computing purposes and can process large amounts of data in parallel, ASICs are used to perform specific tasks. The advantage of ASICs is that because they are programmed to perform a specific task, they are more efficient at performing that task because they consume less power.
Not surprisingly, the market for AI-specific ASICs is expected to grow 32% annually through 2030, according to market research firm Lucintel. One way investors can make the most of this market is by investing in stocks Marvell technology (NASDAQ:MRVL)a designer of custom chips who has witnessed a nice turnaround in his fortunes thanks to AI.
Marvell will report its fiscal 2025 third quarter results after the market closes on December 3. The company’s shares have risen as much as 33% since it published its previous quarterly report on August 29. This increase can be attributed to fast-growing demand for Marvell’s custom chips, which are helping it offset weak demand in other segments.
More specifically, the chipmaker’s total revenue in the second fiscal quarter fell 5% year over year to $1.27 billion. Non-GAAP (adjusted) earnings fell to $0.30 per share from $0.33 per share in the same quarter last year. However, a whopping 92% year-over-year increase in Marvell’s data center revenue to $881 million overshadowed the decline in revenue and profit.
The company has forecast third-quarter revenue of $1.45 billion, which would be a slight improvement over the same period last year. Consensus estimates predict that Marvell will end the current fiscal year with revenues of $5.54 billion, which would be virtually flat from the same period last year. In addition, earnings are expected to decline to $1.46 per share, compared to $1.51 per share in the previous fiscal year.
The good part is that Marvell’s top line and revenue are expected to accelerate significantly in the coming fiscal years.
Given the health of the custom AI chip market, it’s easy to see why analysts expect Marvell to step on the gas. The company expects to end fiscal 2025 with AI revenue of $1.5 billion, a figure that is expected to rise to $2.5 billion in fiscal 2026. More importantly, Marvell will see a big increase in its reachable market predicts thanks to AI. The company expects the total addressable data center (TAM) market to increase from $21 billion in 2023 to $75 billion in 2028.
Marvell points out that $43 billion of this TAM is due to the growing demand for custom computer chips. Meanwhile, another $26 billion will come from the data center switching and interconnection markets. It’s worth noting that Marvell is making progress in both areas. It expects a third of its AI revenue in the current fiscal year to come from custom computer chips, while the rest will come from AI-focused data center connectivity.
More importantly, Marvell has been able to win new customers for its AI chips. This was evident from CEO Matt Murphy’s comments during the previous earnings conference call: “Our custom AI silicon programs are progressing very well, with our first two chips now entering volume production. We have development for new custom programs already secured, including projects with the new Tier 1 AI customer we announced earlier this year, are also closely tracking key milestones.”
There is therefore a good chance that Marvell can deliver better than expected results and end the whole thing with a sunny outlook. That’s why buying this stock before December 3 could be a smart move, as it currently trades at 37 times forward earnings, which isn’t that expensive considering how fast operating income is expected to grow in the coming years to grow. .
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Marvell technology. The Motley Fool has a disclosure policy.
Prediction: These Artificial Intelligence (AI) Chip Stocks Will Skyrocket After December 3 Originally published by The Motley Fool
