Tuesday, Oppenheimer maintained an Outperform rating on Marvell Technology Group Ltd . (NASDAQ:MRVL), increasing its price target to $110 from the previous $90. The firm anticipates a positive outcome from the company's upcoming financial reports, citing potential growth driven by custom compute and networking/optics sectors.
The analyst from Oppenheimer predicts that Marvell's third quarter results for October and the guidance for the fourth quarter ending in January could exceed expectations. This optimism is attributed to the progress in cloud service provider and hyperscale artificial intelligence builds, which are still in the early stages. Marvell's AI-related sales are expected to exceed the management's targets of $1.5 billion and $2.5 billion for calendar years 2024 and 2025, respectively.
Investor conversations suggest that the market is anticipating $2 billion in AI ASIC revenue next year. Marvell's four major projects, which include Trainium, Inferentia, Axion, and Maia, are seen as potential drivers for revenue that could double that estimate. The analyst speculates that Trainium alone might approach a $2 billion revenue mark.
The company's 1.6T PAM4 DSP is currently ramping up, with expectations to contribute tens of millions in revenue for the fourth quarter. Additionally, the crossover between 1.6T and 800G is likely to occur in the first half of calendar year 2026. Sales of the 51.2T TL10 top-of-rack switch are also projected to reach tens of millions in the fourth quarter.
Marvell's non-data center segments, including carrier, enterprise, and storage, are expected to broadly improve, providing further growth opportunities. Long-term gross margins are forecasted to be around 60% or more. The analyst concludes that Marvell's structural growth, primarily led by cloud data center AI, is accelerating into calendar year 2025, reaffirming the Outperform rating with the new price target of $110.
InvestingPro Insights
Marvell Technology Group's recent market performance aligns with Oppenheimer's optimistic outlook. InvestingPro data shows a strong 65.21% price total return over the past year, with the stock trading near its 52-week high at 97% of that peak. This momentum is further evidenced by robust returns of 34.14% and 13.03% over the last three months and one month, respectively.
InvestingPro Tips highlight that Marvell's net income is expected to grow this year, supporting the analyst's positive revenue projections, particularly in AI-related sales. The company's liquid assets exceeding short-term obligations and moderate debt level provide a solid financial foundation for the anticipated growth in custom compute and networking/optics sectors.
While Marvell operates with high EBITDA and revenue valuation multiples, these metrics may be justified by the company's potential in the AI market. Investors should note that Marvell has maintained dividend payments for 13 consecutive years, reflecting financial stability amidst its growth initiatives.
For a comprehensive analysis, InvestingPro offers 11 additional tips, providing deeper insights into Marvell's financial health and market position.
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