After Earnings, Is Marvell Stock a Buy, a Sell, or Fairly Valued?

Marvell Technology MRVL released its fiscal first-quarter earnings report on May 30. Here’s Morningstar’s take on Marvell’s earnings and stock.

Key Morningstar Metrics for Marvell Technology

• Fair Value Estimate: $75.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Marvell Technology’s Q1 Earnings

• We raised our fair value estimate for Marvell to $75 per share from $65 due to a higher medium-term growth forecast, supported by our bullish expectations for the company in generative artificial intelligence. The shares are trading at a nice discount.
• Marvell’s non-data-center end markets are going through a tough correction year in fiscal 2025. Telecom and enterprise customers are reducing orders to reflect softer end-customer demand and to digest built-up inventories.
• Data center and AI growth is more than offsetting weakness in other end markets. Marvell benefits from generative AI buildouts via its optical connectivity chips, and the firm is ramping up custom accelerator chips for Amazon this year, adding to growth.

Fair Value Estimate for Marvell

With its 3-star rating, we believe Marvell’s stock is fairly valued compared with our long-term fair value estimate of $75 per share. Our valuation implies a fiscal 2025 price/adjusted earnings of 51 times and enterprise value to sales of 12 times, along with a 2% free cash flow yield. The primary drivers of our valuation are growth in the data center, carrier, and automotive end markets.

We expect 19% sales growth for Marvell over the next five years, primarily from organic share gains as it flexes its portfolio for growing applications in public clouds, AI, 5G networks, and cars. We model a mixed fiscal 2025, with strong data center growth and sharp declines across enterprise and telecom customers. We expect it to take organic share across most of its end markets, but for its largest win rate to come in the data center. We expect its consumer portfolio to wind down gradually as part of the business over the long term

Read more about Marvell’s fair value estimate.

Economic Moat Rating

We assign Marvell a narrow economic moat. We believe the firm holds intangible assets in networking chip design that let it compete at the cutting edge and defend its competitive position from well-capitalized competition, and that it also benefits from switching costs. We expect Marvell to earn excess returns on invested capital over the next 10 years.

To us, intangible assets in networking chip design come in the form of engineering expertise, both in silicon design and integration with complementary hardware and customer networking topologies. This comes from decades of development, R&D expense, and engraved customer relationships. In our view, Marvell’s billions of dollars of cumulative R&D over the past decade have created a portfolio of differentiated intellectual property from which it can draw to build custom and semi-custom designs for myriad applications and customers.

Read more about Marvell’s economic moat.

Financial Strength

We expect Marvell to focus on deleveraging with its free cash flow. As of January 2024, the firm carried $951 million in cash and $4.2 billion in total debt, largely taken on to acquire Inphi in 2021. We expect Marvell to stay leveraged but pay down debt as it matures.

Read more about Marvell’s financial strength.

Risk and Uncertainty

We assign Marvell a High Uncertainty Rating. We view the firm as prone to cyclicality in its end markets, arising from cloud capital expenditures, 5G buildouts, and the cyclical storage drive market. Though we believe Marvell’s moat and opportunity for content growth help it smooth over some cyclicality, it can be vulnerable to downturns in end-customer spending.

Read more about Marvell’s risk and uncertainty.

MRVL Bulls Say

• Marvell’s strong position in data processors and optical chips should offer high growth potential in future networking setups in public clouds and 5G networks.
• Marvell’s strong non-GAAP profitability reflects moaty pricing power, in our view.
• We believe Marvell’s wide portfolio of switches, processors, and optical chips gives it ample opportunity for cross-selling and share gains.

MRVL Bears Say

• Marvell remains a distant second to Broadcom AVGO in networking chip market share, and it will face an uphill battle to overcome its rival’s customer relationships.
• Marvell’s end markets are cyclical and can be prone to downturns.
• Marvell still has a solid portion of sales going into storage drives, which we think are less differentiated.

This article was compiled by Sokhoeun Noeut.