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The artificial intelligence (AI) megatrend is fueling significant demand for semiconductor chips, making companies such as Marvell Technology (MRVL) a good investment in July 2024. Valued at $62.4 billion by market cap, Marvell has returned 460% to shareholders over the last decade, after adjusting for dividends - outpacing the broader markets by a wide margin.

Last month, former Adobe (ADBE) CFO and newly appointed Marvell board member Daniel Durn purchased 1,425 shares of Marvell stock, priced at $70.21 each. Given his insider status, the $100,000 purchase is notable, as insider buying often indicates that management believes a company’s shares are undervalued.

So, let’s see if Marvell Technology can continue to deliver outsized gains to shareholders in 2024 and beyond.

How Did Marvell Perform in Fiscal Q1 of 2025?

Marvell Technology provides data infrastructure semiconductor solutions, spanning the data center core to the network edge. In fiscal Q1 of 2025 (which ended in April), Marvell’s data center business increased sales by 87% year over year to $816.4 million. However, this was offset by a decline in other business segments, such as enterprise networking, carrier infrastructure, consumer, and industrial.

In fiscal Q1, Marvell's data center sales accounted for 70% of total revenue, which stood at $1.2 billion, down 12% year over year. Similar to other chip makers, Marvell is experiencing strong demand for AI-related offerings, which are part of its data center business.

Discussing Marvell’s Q1 results, CEO Matt Murphy said, “While we are forecasting soft demand impacting consumer, carrier infrastructure, and enterprise networking in the near term, we expect revenue declines in these end markets to be behind us after the first quarter, and project a recovery in the second half of the fiscal year.”

The semiconductor company forecasts fiscal Q2 sales at $1.3 billion, which is flat compared to the year-ago period. However, this is an improvement over a double-digit revenue decline in the last quarter, which means Marvell is on a path toward improved sales performance in the second half of fiscal 2025.

Analysts tracking MRVL stock expect sales to fall 2% year over year to $5.4 billion in fiscal 2025. Revenue is forecast to increase by 32.5% to $7.16 billion in 2026.

AI Will Be a Key Revenue Driver

Marvell is focused on building custom AI components, which should a key revenue driver going forward. In fact, Marvell expects its AI program to experience a significant ramp-up in the next 18 months.

In fiscal Q2 of 2024, Marvell’s data center business reported sales of $459.8 million. Given company forecasts, this business should again grow sales by more than 80% year over year in Q2.

In the last 12 months, Marvell’s data center business has increased its revenue share from 33% to 70%. The data center business will continue to move the needle for Marvell as the AI market is forecast to surpass $800 billion by 2030, up from $136 billion in 2023.

Is MRVL Stock Undervalued?

Out of the 29 analysts covering MRVL stock, 26 recommend “strong buy,” two recommend “moderate buy,” and one recommends “hold,” for an overall recommendation of “strong buy.”

The average target price for MRVL is $88.94, indicating an expected upside potential of over 20%.

Marvell’s focus on improving its cost base allowed it to end Q1 with a gross margin of 45.5%, an improvement of 330 basis points year over year. It expects gross margins to improve to 46.2% in Q2, shielding it against a volatile macro environment.

The company’s solid growth forecasts for 2026 have Wall Street forecasting adjusted earnings of $2.40 per share for the year to come, up from $1.38 per share in fiscal 2025.

On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.