Marvel Technology (Nasdaq: MRVL) The company hasn't attracted as much attention as other semiconductor makers, but its stock price has still risen 250% over the past five years. S&P 500It recorded an increase of about 90% over the same period.
Marvell has grown steadily by acquiring smaller companies and selling lots of chips to the cloud, 5G, automotive, enterprise networking and artificial intelligence (AI) markets, but its $66 billion market capitalization is still small compared to many other semiconductor companies. Could it become a trillion-dollar chipmaker by 2050?
How fast has Marvell grown?
Marvell makes data processing units (DPUs) that bundle a CPU, network interface and programmable data acceleration engines, and also sells infrastructure, Wi-Fi, custom chips, and network and storage devices.
The company is a fabless chipmaker that outsources production to third-party foundries and continues to expand through acquisitions. The company went public on June 27, 2000, and a $10,000 investment in the IPO would be worth more than $200,000 today.
From fiscal year 2001 through fiscal year 2024, which ended in February of this year, Marvell's revenue grew at a compound annual growth rate (CAGR) of 14%. It has grown organically, but it has also acquired a number of companies, including Galileo Technologies and Cavium.
How much more will Marvel grow in the future?
Analysts expect Marvell's revenue to grow at a CAGR of 15% between fiscal 2024 and fiscal 2027. The company struggled with macro headwinds in carrier, enterprise networking, consumer, automotive, and industrial end markets over the past year, but benefited from robust growth in cloud, data center, and AI-oriented businesses.
Marvell expects to benefit from a secular expansion of the AI market over the next few years: in fiscal 2024, revenue from AI-related chips will reach more than 10% of revenue, compared to about 3% of revenue in fiscal 2023. Most of that growth will come from optical chips tied to shipments of AI accelerator chips. NVIDIA's data center GPUs. On its latest conference call, CEO Matt Murphy called the AI market a “key growth driver” for the company.
But unlike Nvidia, which generated 87% of its revenue from AI-focused data center chips in its most recent strong quarter, Marvell still sells a lot of its chips to more macro-sensitive markets. In other words, the company won't grow as fast as Nvidia and other AI-focused chipmakers, but its other businesses should recover as the macro environment improves.
Marvell's inorganic growth has weighed on its generally accepted accounting principles (GAAP) earnings in recent years. The company is expected to remain unprofitable on a GAAP basis in fiscal 2025 as it integrates its latest acquisitions, but is expected to return to profitability in fiscal 2026 and more than double in fiscal 2027.
How much will Marvel be worth in 2050?
Marvel's stock price is not cheap, trading at 12 times this year's sales, and its current valuation appears to be slightly inflated by the buying frenzy of AI-related stocks. BroadcomWith the company growing at a similar rate and expanding aggressively through acquisitions, its stock looks even more expensive at 13 times this year's sales.
If Marvel continues to grow its sales at a compound annual growth rate of 15% between fiscal years 2024 and 2050, it could generate $200 billion in revenue by the end of that year. If its stock price is five times its sales by then, its market capitalization would reach $1 trillion.
But it's unclear whether Marvell can maintain that steady growth rate over the next 26 years. It could face a severe recession, cyclical slowdowns, and stiff competition from other chipmakers. It could also make an ill-advised acquisition that makes its business “sagging,” leading to a vicious cycle of cutting costs instead of boosting sales.
Marvell certainly has a realistic path to becoming a $1 trillion semiconductor company by the middle of this century. For now, however, investors should pay more attention to the integration of the company's latest acquisitions, the macro environment, and sales of AI-powered optical chips. They should also be mindful of the company's historically high valuation and realize that they may be better off accumulating shares gradually over the next few years.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
Will Marvel Technology Be a Trillion Dollar Stock by 2050? was originally published by The Motley Fool.
