Artificial Intelligence (AI) has helped nvidiaof (NASDAQ: NVDA ) As the stock clocks stellar gains in 2024, shares of the semiconductor giant are up more than 183% as of this writing, but it seems investors are now skeptical about the company’s ability to sustain its impressive growth rate over the long term.
This is probably why Nvidia stock has retreated Despite providing better-than-expected numbers and guidance last month. The company’s revenue for the third quarter of fiscal 2025 rose an impressive 94% to $35.1 billion from the year-ago period, while earnings rose 103% year-over-year to $0.81 per share.
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However, Nvidia’s $37.5 billion revenue guidance for the current quarter suggests its top line is on track to grow at a relatively slower pace of 70% compared to the year-ago quarter. Additionally, the company will face margin pressure in the near term due to the rollout of its Blackwell processors, which seems to dampen investor confidence.
Of course, Nvidia can overcome these challenges and provide more benefits to investors. However, those who missed out on Nvidia’s rally and are looking for a relatively inexpensive AI stock That is not an expensive trade may consider taking a closer look at the 31 times sale. Marvel Technology(NASDAQ: MRVL ). Let us consider the reasons for this.
Marvell Technologies released its fiscal 2025 third quarter results (for the three months ended November 2) on December 3. The chipmaker’s net revenue rose 7% year over year to $1.52 billion, beating consensus expectations of $1.46 billion. Its non-GAAP (adjusted) earnings rose to $0.43 per share from $0.41 per share in the year-ago period, again beating the consensus estimate of $0.41.
You might be wondering why Marvell might be a good choice considering Nvidia’s slow pace of growth, but a closer look at the company’s data center business will reveal the real picture. The data center segment generated 73% of Marvell’s top line last quarter, up from 39% in the year-ago period. Segment revenue nearly doubled to $1.1 billion on a year-over-year basis, which the company has seen in other segments such as enterprise networking, carrier infrastructure, automotive/industrial, and consumer.
The upside is that the strength of Marvell’s data center business, which is benefiting from growing demand for custom AI processors and optical networking equipment, should be enough to lift the company’s growth in the current quarter. That’s evident from Marvel’s fiscal fourth-quarter revenue guidance of $1.8 billion, which would be a 26% jump from the year-ago period. Analysts would have settled for $1.65 billion in revenue from Marvell for the current quarter.
Additionally, the chipmaker expects earnings in the current quarter to come in at $0.59 per share, which would translate into a 28% increase over the same period last year. Marvell CEO Matt Murphy pointed out on the latest earnings conference call that higher-than-expected demand for its custom AI processors played a central role in its better-than-expected performance and stronger guidance.
Marvel management believes this will “significantly exceed the full-year AI revenue target of $1.5 billion.” The chipmaker is forecasting $2.5 billion in AI chip sales next fiscal year, though analysts believe its AI-focused revenue could climb to $3 billion next year.
It’s easy to see why analysts are expecting continued strong growth in Marvel’s AI-related business. After all, the company is one of two major designers of custom chips being developed by major cloud computing providers to reduce their reliance on Nvidia by developing chips in-house. These cloud companies turn to the likes of Marvell and Broadcom to design their internal chips.
Reuters reports that the market for custom AI chips could be an impressive $45 billion by 2028, compared to an estimated $10 billion this year. Meanwhile, the company sees an additional revenue opportunity of $26 billion in data center switching and interconnect by 2028, thanks to AI. So, it wouldn’t be surprising to see Marvel have very strong revenue and earnings growth next fiscal year and beyond.
Based on Marvell’s fiscal Q4 guidance, the company is on track to end fiscal 2025 with revenue of $5.75 billion. This would be an increase of only 4% from the FY 2024 level. Its earnings are on track to reach $1.56 per share for the full year, up 3% from the previous fiscal year.
Analysts, however, are expecting much stronger growth in fiscal 2026 (which begins in February next year and coincides with 11 months of calendar 2025).
Top-line forecasts for fiscal 2026 point to 31% growth, while the bottom line will grow an impressive 63%. Of course, it wouldn’t be surprising to see analysts raise their estimates after Marvel’s latest quarterly report.
However, even if Marvel manages to achieve $7.5 billion in sales next year and trades at 16 times sales at that time, its market capitalization could reach $120 billion. This would be a 43% increase from current levels. However, the market has rewarded Nvidia’s choice with a much higher sales figure of 31.
If something like this happens with Marvel and the company manages to deliver strong growth in 2025, it may be able to deliver much stronger profits than the estimate mentioned above.
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Harsh Chauhan No positions in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. Motley Fool has a Disclosure Policy.
