Investing In AI? Marvell Technology Is The Company To Watch (NASDAQ:MRVL)


One of the top themes for investment in 2024 is Artificial Intelligence (“AI”), and if you are looking to invest in AI, now is the time to invest in Marvell Technology (NASDAQ:MRVL). This company should benefit tremendously from the proliferation of AI. However, the problem is that a few other areas of its business have encountered short-term issues, which showed up the last time the company reported earnings on November 30, 2023. Investors were disappointed in its near-term revenue forecasts and lackluster profitability. Still, despite the short-term hiccup in revenue growth and profitability, the potential long-term opportunity justifies a buy.

The company has several different business lines

Marvell Third Quarter FY 2024 Earnings Presentation.

We have been forecasting for some time that this wave of above-market wireless growth for Marvell would start to decline by the fourth quarter as the initial wave of 5G rollout completion. Additionally, demand is continuing to soften as carriers are managing CapEx [Capital Expenditures] in a difficult macroeconomic environment. As a result, following an extended multiyear period of strong growth, we are expecting a period of digestion. In addition, we expect revenue from the wired portion of our carrier end markets to continue to decline, reflecting weakening demand. As a result, for the fourth quarter, we expect revenue from our overall carrier end market to decline in the mid-40% range on a sequential basis.

Source: Third Quarter FY 2024 Earnings Call.

The last thing I would say, though, on carrier and enterprise is that these are — this is a cyclical downturn on these and the kind of design win strength we’ve had in the design position we had is such that [when] these…recover, and they will come back to a normalized run rate over time. And when that happens, that will be a tailwind to EPS [earning-per-share] and a tailwind to revenue growth as that kind of think of it as the base business of Marvell returns to growth.

Source: Marvell Third Quarter FY 2024 Earnings Call.

In our last earnings call, we provided a forecast for AI revenue to cross a $200 million quarterly run rate exiting this year. Since then, demand has continued to grow, and we now expect our AI revenue in the fourth quarter to come in significantly above our forecast. In addition to strong growth from AI, we also expect revenue from standard cloud infrastructure to grow sequentially in the fourth quarter. For the enterprise on-premise portion of our data center end market, we expect revenue to decline sequentially in the fourth quarter.

Source: Marvell Third Quarter FY 2024 Earnings Call.

Marvell benefits from AI in several ways

PAM4 optical modules: AI, especially generative AI, requires fast data transmission between servers and storage systems. These modules help reduce latency within AI systems. The lower the latency, the quicker applications like Bard, ChatGPT, or any other AI can produce answers to a query. Marvell was the first company to release a PAM4 device in March 2023. It is an upgrade over the previous NRZ (non-return-to-zero) technology; PAM4 can transmit more data per unit than NRZ, reducing power consumption. Teralynx Ethernet switches: This component is another AI-enabling technology that provides high-performance connectivity between servers, storage, and AI processing units for cloud data centers. Data center interconnect(“DCI”) products: Marvell’s top product in this category is the 800G ZR/ZR+ optical modules, first introduced in August 2023. The company designed this product to connect data centers up to 1,200km apart. DCI enables more rapid data transfers between data centers, reducing latency in AI workloads.

In the future, we expect generative AI implementations involving video and images to provide a tailwind to overall storage and exabyte growth, both in HDD and Flash. However, it is difficult to accurately allocate revenue from our storage business specifically to AI. So, the AI revenue forecast I just discussed does not include any storage contributions. In addition, we expect the increase in network traffic from AI will also provide a tailwind for our broader networking portfolio over time, which we have not yet captured in our AI revenue forecast. We’ve seen rapid shifts in our cloud customers plan to spending on AI infrastructures becoming a much bigger portion of their CapEx [capital expenditures]. We believe that Marvell is one of a scarce few semiconductor companies positioned to enable this trend and is uniquely able to participate in all three aspects of AI systems, networking, compute, and storage.

Source: Marvell First Quarter FY 2024 Earnings Call.

Marvell today announced that the company’s ASICs offering is well-positioned to enable the next generation of AI accelerator solutions for the data center and automotive markets. Marvell’s custom ASIC offering is differentiated for AI and machine learning applications with leading density and performance SRAMs [Static random-access memory], the highest performance SerDes [Serializer/deserializer] and a full spectrum of pre-qualified high-bandwidth memory interfaces.

Source: Marvell news release.

But what I would say is, and I’ve been saying this to investors for about 6 months, we are not in a position to call the ball just yet on how big the custom silicon opportunity can be for next year. It’s still early, Vivek. I understand the investor appetite for this. I would say between us and our customers, we’re not fully — we don’t fully know how big this can be yet. So I’m going to need a little bit more time to probably size that for you. But what I can say is from when we first talked about AI two…

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