marvel technology's (NASDAQ:MRVL) The stock has outperformed the stock, up nearly 50% over the past three years. S&P500This is an increase of approximately 30%. The chipmaker has grown rapidly through acquisitions, selling large quantities of chips for cloud, 5G, automotive, enterprise networking, and AI markets.
Given its historical growth, can the company's stock price continue to rise over the next three years?
What does Marvell Technology do?
Marvell's data processing unit (DPU) brings together a CPU, a network interface, and a programmable data acceleration engine. It also sells other types of infrastructure, Wi-Fi, and custom chips, as well as networking and storage solutions.
Marvell is a fabless chip manufacturer and outsources production to third-party foundries, including: taiwan semiconductor manufacturing. We are also continually expanding our portfolio through acquisitions. In just the past three years, the company has acquired Inphi, a developer of mixed-signal integrated circuits. Innovium develops networking solutions for data centers. Tanzanite develops technology that optimizes workloads across data centers.
How fast is Marvell Technology growing?
From fiscal year 2017 to fiscal year 2021 (ending January 2021), Marvell's revenue grew at a compound annual growth rate (CAGR) of 7%, and earnings per share (EPS) grew at a non-GAAP rate of 10%. Increased at a CAGR (based on Generally Accepted Accounting Principles). This growth also includes the acquisition of Cavium, which was acquired in July 2018 for $5.5 billion. From fiscal 2017 to fiscal 2021, Marvell's non-GAAP gross margin expanded from 55.9% to 63.3%, and non-GAAP operating margin increased from 14.7% to 24.2%.
In two of the past three fiscal years, Marvell's revenue growth has accelerated as its profits have expanded. Adjusted earnings and earnings before interest, taxes, depreciation and amortization (EBITDA) also increased at a steady pace.
|
metric |
2022 |
2023 |
FY2024 |
|---|---|---|---|
|
increase in revenue |
50% |
33% |
(7%) |
|
Non-GAAP gross profit |
64.9% |
64.5% |
61.2% |
|
Non-GAAP operating margin |
32.8% |
35.5% |
29% |
|
Non-GAAP EPS growth rate |
71% |
35% |
(29%) |
|
EBITDA growth |
89% |
39% |
(twenty one%) |
Data source: Marvell, MarketScreener.
Marvel's revenue for fiscal year 2022 skyrocketed for two reasons. One is that he acquired Inphi and Innovaum, and he organically expanded his cloud, enterprise networking, 5G, and automotive chip manufacturing businesses. This momentum continued through most of fiscal 2023, but growth slowed by the end of the year as macro headwinds intensified.
Through most of fiscal year 2024, weakness in Marvell's carrier, enterprise networking, consumer, automotive, and industrial end markets offset strong growth in its cloud, data center, and AI-oriented businesses. However, many of these high-growth markets are also low-margin markets, resulting in lower gross margins.
What will happen to Marvel in the next three years?
Like many other chipmakers, Marvell expects the long-term expansion of the AI market to drive its long-term growth. AI chips accounted for more than 10% of total sales in FY2024, up from about 3% of sales in FY2023.
During Marvell's fourth quarter conference call in early March, CEO Matt Murphy said AI “continues to drive another strong year” in the company's data center end market. He said the country's growth is a “key growth driver.” Murphy expects most of that growth to come from optical products tied to shipments of his AI accelerators, including: NvidiaGPU.
As Marvell expands its AI-oriented business, that weak market could stabilize as macro headwinds fade. Analysts expect revenue to grow at a CAGR of 15% and EBITDA to grow at a CAGR of 24% from FY2024 to FY2027.
However, based on these estimates, Marvell's stock is not cheap at 13 times this year's sales and 37 times EBITDA. These valuations may have been inflated by the ongoing buying frenzy in AI stocks and expectations for interest rate cuts later this year. A year ago, Marvell was trading at just 20 times forward EBITDA. Two years ago, that forward ratio was 28x. That may be why Marvell insiders sold over 1.2 million shares in the past 12 months, but didn't buy a single share.
Marvel stock still has room to rise
I believe Marvel's valuation will return to historic levels over the next three years, even if it matches Wall Street's goals. Assuming the company meets these targets and trades at a more reasonable 25x EBITDA by early 2027 (end of fiscal year 2027), the company's stock price would trade at around $100 per share. That will happen.
That's a respectable 36% increase from Marvell's current price, but it may not be enough to satisfy growth-minded investors looking for the next NVIDIA. So investors should see Marvell for what it is: a stable, blue-chip semiconductor stock, not a jumpstart in the booming AI market.
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Leo Sun has no position in any stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.
What will Marvell Technology stock be like in three years? Originally published by The Motley Fool
