Here's Our Plan for This Under-Appreciated Holding as 'Powerful Story' Unfolds

Thursday, after the closing bell, Pro Portfolio holding Marvell Technology MRVL reported a perfectly good April quarter, with top and bottom-line results that edged out Wall Street consensus forecasts. The company also delivered current quarter guidance for EPS of $0.62-$0.72 on revenue of $1.9 billion-$2.1 billion, bookending the market’s expectation for $0.66 and $1.98 billion, respectively. Typical Marvell. However, providing context for those guidance figures tells a more powerful story that is unfolding at Marvell.

At the midpoint of its revenue guidance, Marvell’s top line would be up some 57% year over year as it continues to benefit from AI and data center demand as well as the ramp of its custom AI silicon business. The continued rebound in its Carrier Infrastructure and Enterprise Networking businesses and the maturing of Marvell’s custom AI silicon business, much like the maturing we are seeing with Nvidia’s NVDA Blackwell business, should lead margins higher. That combination should drive another dramatic year-over-year jump in Marvell’s EPS compared to the $0.30 posted for the July 2024 quarter.

That perspective, those figures, and their implied growth rates keep us bullish on Marvell. It should also push back on questions surrounding Marvell’s custom AI silicon business, and reaffirm the reasons behind Cantor Fitzgerald’s recent mea culpa on the shares. 

Coming up, we have Marvell’s upcoming custom AI silicon event on June 17, which should shed far more light on that business and its growth prospects. For now, we’ll keep our $115 price target, and revisit it, as needed, after that event. Indeed, we would not be surprised to see some of today’s price target trims by Wall Street firms be reversed following the event.

Earlier we talked about sitting on the sidelines Friday and waiting to pick up more shares of Elastic ESTC near-term. The same goes for Marvell shares.

Marvell’s April Quarter and Guidance

Getting into the numbers, Marvell delivered April quarter EPS of $0.62, $0.01 better than the consensus forecast, on revenue that soared more than 60% year over year to $1.90 billion, also ahead of the $1.88 billion consensus. On a year-over-year basis, the company’s April quarter EPS was up more than 158%.

Much like our recent comments on Nvidia NVDA, because data center accounts for 75% of Marvell’s revenue stream, most will focus on that reporting segment, which posted 76% revenue growth during the quarter as the company continues to benefit from AI and data center related spending and the ramp in its custom silicon business with the likes of Amazon AMZN, Meta META, Alphabet GOOGL and before too long Microsoft MSFT.

For those keeping track, the company's quarterly revenue increase was slightly higher than the 73% gain posted by Nvidia in the same quarter. That should quell concerns over Marvell’s custom AI silicon business, which continued to ramp during the quarter and contributed to AI driving the majority of the company’s data center revenue. 

During the earnings call, Marvell management shared expectations for continued growth in AI and data center, guiding current quarter revenue to be up mid-single digits sequentially, which equates to year-over-year growth of more than 70%. We expect to hear much more about the company’s AI and data center business, and the role of its AI custom silicon business during its June 17 custom silicon event.

Tailwinds

The tailwinds behind Marvell’s largest business are certainly favorable, but we also like the developing ones for its Carrier Infrastructure and Enterprise Networking segments. Collectively those two segments accounted for 16% of Marvell’s April-quarter revenue and were up 14% sequentially but a more impressive 40% on a year-over-year basis. Our view has been that as AI adoption in the enterprise and with consumers grows, network capacity utilization would rise and pressure carriers and companies to address those bottlenecks. We see that continuing the rebound in these two reporting segments for Marvell past the expected sequential mid-single-digit growth rate for the current quarter. Implied in that forecast is a step up in year-over-year growth to around 45% vs. that 40% figure mentioned above.

Rounding out Marvell’s revenue stream are its Consumer, Automotive, and Industrial businesses, which, while small at a collective 7%, continued to decline in the April quarter. Like the seasonal weakness we are seeing with the smartphone market now, Marvell’s Consumer segment is largely influenced by seasonality and is expected to rebound sharply in the current quarter; however, given the impact of tariffs, we do not expect that jump to be as large as it was in recent years. 

April quarter revenue for the automotive and industrial end markets tallied $76 million, down 12% quarter over quarter as the lumpy industrial market offset growth in the automotive one. Let’s remember that during the April quarter, Marvell announced the sale of our automotive Ethernet business to Infineon in an all-cash transaction valued at $2.5 billion that should close later this year. As that transaction clears, we suspect management will evaluate options for its Industrial business as well and could do the same with Consumer. We would applaud such moves as they would not only bolster the cash position on Marvell’s balance sheet, but would make for a cleaner company story.

Stock Buybacks

During the April quarter, Marvell stepped up its use of its share repurchase program, taking down $340 million in stock, leaving ~$2.25 billion under the current program. Given where MRVL shares traded in April we suspect the bulk of that repurchase activity was done then. With the shares still well off highs seen earlier this year, measured against the prospects for a stronger 2025 second half we suspect Marvell will continue to flex that program near-term. 

At the time of publication, TheStreet Pro Portfolio was long MRVL, NVDA, GOOGL, MSFT, META, AMZN and ESTC.