Shares of chipmaker Marvell Technology (MRVL 4.07%) rallied 19.2% in December, according to data from S&P Global Market Intelligence.
Marvell had a very busy month, reporting its fiscal third-quarter earnings while also making several positive announcements regarding its technology and key partnerships. So, it’s no wonder the stock rallied in December to finish the year up 83%.
Marvell beats and raises
In its fiscal third quarter, Marvell grew revenue 7% to $1.52 billion, while adjusted (non-GAAP) earnings per share rose 5% to $0.43. While these growth figures may not blow anyone away, they did beat analyst expectations. Moreover, the underlying growth of Marvell’s key segments was much more encouraging.
Marvell makes a variety of chips in data center, enterprise networking, carrier telecom equipment, consumer electronics, and auto/industrial applications. All these segments are currently in a harsh downcycle, with the exception of the data center segment.
But not only is the data center segment not in a downcycle, it’s booming, up a whopping 98% year over year. That’s thanks to Marvell’s custom artificial intelligence (AI) chips, co-designed with cloud giants, and its data center networking chip portfolio. Even better news is that Marvell’s stronger data center segment now makes up 73% of revenue, up from 39% a year ago.
Management also sees forward growth accelerating, guiding for $1.8 billion in revenue for the current quarter, which would amount to 19% sequential growth or 99% annualized.
But the bullish news didn’t end with earnings. Early in December, Marvell and key customer Amazon (AMZN 1.80%) announced a five-year deal to collaborate more deeply on AI data center infrastructure, from custom ASICs (application-specific integrated chips) for cloud AI to digital and optical networking chips.
Following that, Marvell continued to display its innovation chops, unveiling a new kind of memory interface that will greatly boost the speed and efficiency of ASICs processing high-bandwidth memory. Marvell also introduced the industry’s first 1.6 terabyte-per-second PAM4 digital signal processor for lighting-fast AI communications.
What to do with Marvell shares now
Marvell now trades at 43 times the coming year’s earnings estimates, which is certainly not cheap. Whether Marvell remains a buy depends on the strength and length of the AI buildout. If a digestion period occurs after two years of hypergrowth, the stock may be dangerously overvalued. But if the AI buildout continues apace through the end of this decade, Marvell could still perform well, even from these high levels.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Billy Duberstein and/or his clients have positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.
