Marvell Technology: AI Powerhouse Offering 35% Undervalued Growth

Marvell Technology: A Compelling Buy Opportunity Amid AI Boom

Marvell Technology (NASDAQ:MRVL) has positioned itself as a leading player in the rapidly expanding artificial intelligence (AI) and data center markets. The company’s Q3 fiscal 2025 performance and forward-looking guidance underscore its ability to capitalize on AI-driven growth and custom silicon solutions. With strong partnerships, particularly with Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL), robust financial metrics, and strategic restructuring efforts, Marvell presents a significant undervaluation and growth opportunity for investors.

Expanding Custom Silicon Business and AI Dominance

In Q3 FY25, NASDAQ:MRVL reported that 73% of its revenues came from its custom silicon business, a dramatic increase from 39% in the same period last year. This shift was fueled by Marvell’s five-year agreement with Amazon AWS, which centers on custom AI chips like Trainium 2 and Inferentia, optical digital signal processors, and advanced networking solutions. Data center revenue surged by 98% year-over-year to $1.1 billion, representing a massive share of the company’s total revenue.

These results reflect the growing demand for custom chips tailored for AI applications. Amazon’s reliance on Marvell’s silicon technologies exemplifies a broader trend among hyperscalers diversifying away from Nvidia’s (NASDAQ:NVDA) GPUs to reduce dependency. This dynamic has created a fertile market for Marvell’s innovative AI accelerators and networking infrastructure.

Strong Q3 Financial Performance

Marvell exceeded expectations in Q3 FY25 with adjusted earnings per share (EPS) of $0.43, beating estimates of $0.41. Revenue came in at $1.52 billion, surpassing the $1.46 billion consensus. Despite macroeconomic pressures, Marvell achieved 6.9% year-over-year revenue growth, driven by the 25% quarter-over-quarter increase in data center sales.

Non-GAAP gross margins reached 60.5%, although GAAP margins were impacted by one-time restructuring charges of $356.8 million. These charges were primarily related to legacy business impairments, signaling a focused pivot toward AI and data center markets. Free cash flow for the quarter was a robust $460 million, reflecting strong operational efficiency.

AI Growth Outlook: $2.5 Billion Revenue Target in Sight

Marvell has already exceeded its FY25 AI revenue target of $1.5 billion, and management projects that this will rise to $2.5 billion in FY26. This momentum is backed by ramping production of custom silicon solutions for major clients like Amazon and Google, as well as upcoming projects with Microsoft (NASDAQ:MSFT).

The company’s advanced AI offerings, such as 1.6T active electrical cable DSPs and Ethernet switching silicon, are expected to drive further growth. Analysts predict Marvell could achieve 25% of the data center accelerator chip market by 2028, representing over $40 billion in revenue potential.

Strategic Partnership with Amazon AWS

A cornerstone of Marvell’s growth strategy is its expanded partnership with Amazon AWS. The recently announced five-year agreement will see Marvell supplying custom AI chips, optical modules, and other data center components. Amazon’s decision to integrate Marvell’s Trainium 2 chips into its infrastructure underscores the competitive advantage of Marvell’s custom silicon.

Amazon’s increasing adoption of Marvell’s solutions is expected to generate sticky revenue streams as AWS continues to scale its AI infrastructure. These contracts highlight Marvell’s ability to meet the complex demands of hyperscalers, solidifying its position in the competitive AI ecosystem.

Valuation Signals Undervaluation and Upside Potential

Despite its dominant position in the AI and data center markets, NASDAQ:MRVL remains undervalued, presenting a buy opportunity for investors. The stock currently trades at a forward price-to-sales ratio of 15x, which, while above market averages, reflects the premium for high-growth AI enablers. However, when compared to its projected 26% year-over-year revenue growth for fiscal 2025, the valuation becomes more compelling.

A fair value estimate of $130 per share—derived from its robust growth trajectory and strategic execution—represents a 35% upside from its current price of approximately $95. This valuation highlights Marvell's unique positioning to benefit from the ongoing AI revolution and its potential to generate substantial shareholder returns.

Insider Transactions and Shareholder Value

Marvell’s management has demonstrated confidence in the company’s trajectory through significant stock repurchases, totaling $525 million year-to-date, including $200 million in Q3 alone. The company also paid $52 million in dividends during the quarter. For detailed insights into insider activity, visit Marvell's Insider Transactions page.