On Monday, Deutsche Bank (ETR:DBKGn) reiterated a Buy rating on Marvell Technology Group Ltd . (NASDAQ:MRVL), maintaining a price target of $90.00. The firm anticipates a robust third-quarter fiscal year 2025 report for Marvell, driven by significant growth in artificial intelligence revenues and a steady recovery in Carrier/Enterprise Networking.
The analyst expects Marvell's revenues to increase by approximately 14% quarter-over-quarter, with AI revenue surging by 40% due to strong performance in custom compute and optical sectors. This upward trend is projected to continue into the fourth quarter, with total revenues predicted to rise by 15%, AI by 33%, and Carrier/Enterprise by 13%.
Despite the expected gross margin headwinds, with a quarter-over-quarter decrease of about 90 basis points to 61% in the third quarter and a flat performance forecasted for the fourth quarter, Marvell is likely to see impressive operating margin expansion. The operating margin is estimated to grow by approximately 280 basis points quarter-over-quarter to around 29% in the third quarter, with a further increase to about 33% in the fourth quarter.
This expansion is anticipated to contribute to pro forma earnings per share growth, with third and fourth-quarter estimates at $0.40 and $0.53, indicating a roughly 14% sequential increase.
The analyst highlighted Marvell's strong positioning to capitalize on AI-related growth, particularly in custom compute, where the company is currently ramping up with Amazon (NASDAQ:AMZN) and expects future engagements with Google (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT). Coupled with a rebound in cyclical segments, these factors may bolster investor confidence in Marvell's ability to achieve or exceed its near-to-medium-term earnings per share goals of $3-$4.
Furthermore, the analyst suggests that continued strong performance could align with the more optimistic long-term scenarios of approximately $7-$8 EPS as outlined in the company's April 2024 AI event.
Marvell's stock has already seen a significant increase, approximately 30% since the last earnings report, reflecting the positive developments. Deutsche Bank sees potential for further upside as investor confidence grows in Marvell's long-term earnings power. Post-earnings, Deutsche Bank plans to review its estimates, price target, and rating.
In other recent news, Marvell Technology has been the subject of several analyst reports. Loop Capital initiated coverage on Marvell, assigning a Hold rating and setting a price target of $95.00, pointing to the company's positive position in the market. However, the firm expressed caution due to Marvell's current valuation, which stands at approximately 45 times next twelve months' earnings per share.
On a different note, Astera Labs delivered a strong fourth-quarter earnings performance, surpassing expectations with revenue projections exceeding analyst forecasts by 19% and an earnings per share outlook 41% higher than anticipated. Evercore ISI responded to this by raising Astera Labs' price target to $110, maintaining an Outperform rating.
Marvell Technology also reported robust Q2 results, with revenues exceeding expectations at $1.27 billion. This prompted Citi to maintain a Buy rating on Marvell shares, predicting the company will surpass consensus estimates for the second half of 2024. BofA Securities, KeyBanc, and TD Cowen also maintained positive ratings on Marvell, with raised price targets reflecting the company's strong performance and future prospects.
Marvell Technology also saw a change in its board of directors with the resignation of Dr. Ford (NYSE:F) Tamer. The company clarified that this change was not due to any disagreements on operational matters.
Moreover, Marvell Technology plans to increase stock repurchases in the third quarter and anticipates sequential growth across all end markets. The management team expressed confidence in exceeding the firm's artificial intelligence revenue targets for fiscal years 2025 and 2026.
InvestingPro Insights
Marvell Technology Group's recent performance aligns with Deutsche Bank's optimistic outlook. According to InvestingPro data, the company's stock has shown a strong return of 65.7% over the last year, with a particularly impressive 28.88% gain in the past three months. This upward trend supports the analyst's positive stance on the stock.
InvestingPro Tips highlight that Marvell's net income is expected to grow this year, and analysts predict the company will be profitable. This projection corresponds with Deutsche Bank's forecast of expanding operating margins and earnings per share growth. Additionally, the tip indicating that Marvell operates with a moderate level of debt suggests financial stability, which could be advantageous as the company positions itself to capitalize on AI-related growth opportunities.
It's worth noting that InvestingPro offers 11 additional tips for Marvell Technology Group, providing investors with a more comprehensive analysis of the company's financial health and market position.
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