TLDR;
The analysis focuses on Marvell Technology (MRVL) stock, which has significantly underperformed compared to Broadcom (AVGO). The video assesses Marvell's risks and upside potential, highlighting its involvement in custom AI chip development, financial performance, and significant exposure to the Chinese market. Despite being unprofitable on a GAAP basis, Marvell shows improving profitability trends and trades at an attractive forward PE ratio. Key takeaways include the company's growth potential in the data center market, the risk of customer concentration, and vulnerability to potential chip export restrictions due to its reliance on Chinese revenues.
- Marvell's stock is down 42% year-to-date, while Broadcom's is up 44%.
- Marvell is involved in custom AI chip development with companies like Amazon and Microsoft.
- A significant portion of Marvell's revenue comes from China, posing a risk due to potential export restrictions.
- The company is becoming profitable on a GAAP basis, signaling improved efficiency.
- Marvell's attractive forward PE ratio and potential for growth make it an interesting investment opportunity.
Introduction [0:00]
The video introduces an analysis of Marvell Technology (MRVL) stock, noting its 42% year-to-date decline, contrasting it with Broadcom's 44% increase. The discussion will cover Marvell's involvement in custom AI chips, assessing both the risks and potential upside for the company. The presenter mentions the trend of companies partnering to create custom AI chips to reduce reliance on Nvidia.
Broadcom's Growth and Marvell's Segments [1:18]
Broadcom (AVGO) is experiencing significant growth, with a 58% year-over-year increase and a 6% quarter-over-quarter increase. Marvell operates in four segments: data centers, enterprise networking, carrier infrastructure, and consumer. Data centers are up 69% year-over-year, while enterprise networking grew 28% year-over-year. Carrier infrastructure, related to 5G, is up 71% year-over-year, and the consumer segment is up 30%. Marvell sold its automotive business for $2.5 billion and plans to reinvest in the data center business, also announcing a stock buyback program.
Financial Performance and Customer Concentration [2:21]
Marvell beat earnings per share expectations but met revenue expectations in the last quarter. The stock declined because Q3 revenue guidance was flat sequentially, attributed to nonlinear growth in the custom AI chip business. This lumpiness indicates a high dependency on one or two customers, creating customer concentration risk. Estimates suggest Amazon Web Services (AWS) accounts for 76% of Marvell's data center revenue, posing a risk if this relationship were to change. However, Marvell has a 5-year contract with AWS signed in December 2024, and also has contracts with Microsoft and potentially Meta.
Profitability and Valuation [4:01]
Marvell is unprofitable on a GAAP (Generally Accepted Accounting Principles) basis due to significant stock-based compensation, but it has been profitable on a non-GAAP basis since 2021. The company has been sequentially profitable on a GAAP basis for the last three quarters, signaling improved efficiency. With a non-GAAP forward PE ratio of 20, Marvell's valuation is attractive, especially considering the potential growth in data center capex and custom chips taking market share. Analysts expect 20-25% earnings per share growth for the next four to five years, resulting in a price to earnings growth (PEG) ratio of one, which suggests a good deal if the growth is sustainable.
Risk of Foreign Revenue Concentration [6:11]
A major risk for Marvell is its concentration of revenue in foreign countries, particularly China. Only $310 million comes from the United States, while $583 million comes from China, almost double the US revenue. This significant exposure to China makes Marvell vulnerable to potential chip export bans or restrictions. While US exposure has been growing and China exposure shrinking, the company remains highly susceptible to any restrictions on chip exports.
Conclusion [7:45]
Marvell appears to be an interesting potential turnaround opportunity. The situation is similar to AMD at $90-$100. The analysis provides both the risks and potential upside, highlighting the company's growth prospects and vulnerabilities.