Marvell Technology, Inc. (MRVL): Do This Hardware Stock’s AI Plays Make Analysts Remain Optimistic?

We recently compiled a list of the 15 Best Hardware Stocks According to Hedge Funds. In this article, we are going to take a look at where Marvell Technology, Inc. (NASDAQ:MRVL) stands against the other hardware stocks.

With the first half of 2024 nearly over, artificial intelligence continues to play a dominant role in the stock market. Stocks that either design semiconductors that are used for AI applications, or those that use them to either streamline their internal operations such as coding or offer products to customers have also made significant gains. These show the optimism in Wall Street for accelerated computing technologies, which are collectively called artificial intelligence.

In fact, the impact of AI has been so strong that not only has it upended the status quo of the most valuable firms in terms of market capitalization, but it also allowed some of the top AI companies to post triple digit percentage share price returns over the course of the past twelve months. Some of the top performing AI stocks are up by 213% over the past twelve months and have appreciated by 773% since November 2022. Back then, the stock market was whimpering in the aftermath of rapid interest rate hikes by the Federal Reserve, which had hit technology stocks particularly hard since they benefit from a fast growth and low rate environment.

However, AI's impact on the stock market has fueled the triple digit percentage gains in some stocks since then. At the same time, it has also meant that major indexes continue to demonstrate robust performance that is fueled by the share price performance of mega cap technology stocks.

In 2024, the market has moved forward from investing in AI companies that can change the world with their hardware or software to evaluating whether these firms are delivering. The first quarter of the 2024 earnings season was the clearest example of this phenomenon, and it saw Wall Street take an unforgiving approach to large and small firms that presented even the slightest hint of being unable to either grow their revenues by targeting AI or control the costs of investing in the new technologies.

Within the AI industry, there are different categories of firms. Most of these, such as OpenAI, operate on the software side. This industry subsegment develops applications such as chat bots and other assistants along with expanding the use of AI to existing software such as image editing tools. AI hardware companies power these applications, and when compared to the software firms, not only do they command stable valuations, but they also see investors take comfort in the fact that the demand for their products is far more stable and predictable when compared to software demand. Recently Goldman Sachs published a bullish report on hardware stocks due to AI, which we covered in 15 Best Hardware Stocks According To Goldman. In this article we are going to approach the same theme from a different angle and there are vast differences between both rankings of hardware stocks.

Our Methodology

To make our list of the top hedge fund hardware stock picks, we ranked personal computing, semiconductor, and computer hardware by the number of hedge funds that had bought the shares in Q1 2024. Out of these, the stocks with the highest number of hedge fund investors were selected. Basically our article listed the best hardware stocks to buy according to the 900+ equity hedge funds tracked by Insider Monkey. Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

An assembly line in a semiconductor factory, with workers at their stations.

Marvell Technology, Inc. (NASDAQ:MRVL)

Number of Hedge Fund Shareholders In Q1 2024: 87

Marvell Technology, Inc. (NASDAQ:MRVL) sells signal processors, networking equipment, and other associated hardware products. The firm's first quarter results, which saw it beat analyst revenue estimates of $1.15 billion by $10 million but miss EPS estimates of -$0.24 by posting -$0.25 impressed Needham which set a Buy rating and a $95 share price target. Needham's decision was based on strong performance by Marvell Technology, Inc. (NASDAQ:MRVL)'s data center division, as well as the belief that full year AI revenue can now sit at $1.6 billion - higher than the previous estimate of $1.5 billion.

For their first quarter of 2024 shareholdings, 87 out of the 933 hedge funds tracked by Insider Monkey were Marvell Technology, Inc. (NASDAQ:MRVL)'s stakeholders. Rajiv Jain's GQG Partners owned the most valuable stake which was worth $533 million.

Marvell Technology, Inc. (NASDAQ:MRVL) has a forward price to earnings ratio of 53.48, which is more than twice the market's 21. CEO Matt Murphy was quite optimistic about his firm's AI plays during Marvell Technology, Inc. (NASDAQ:MRVL)'s first quarter of fiscal 2025 earnings call where he shared:

The outperformance was driven by strong demand from cloud AI applications for our electro-optics portfolio, including PAM, DSPs, TIAs and drivers as well as our ZR data center interconnect products. Data center revenue grew 87% year-over-year and 7% sequentially, with double-digit growth from cloud more than offsetting a higher than seasonal decline in revenue for enterprise on premise data centers. Strong revenue growth was driven by cloud AI as well as standard cloud infrastructure. In addition to strong contributions from our market leading electro-optics products, we also benefited in the first quarter from the initial shipments of our custom AI compute programs. Turning to the second quarter of fiscal 2025, we expect our overall data center revenue to grow in the mid-single digits sequentially on a percentage basis as our custom AI silicon continues ramping.

I’m very pleased with our results and projected guidance for our data center end market. Our continued growth in data center and AI in particular is being driven by our leading portfolio of connectivity and custom compute products. Starting with our interconnect solutions. Our 100 gig per lane, 800 gig PAM products are the primary interconnect enabler for state-of-the–art AI deployments today, and customers have already started qualifying our first to market next generation 200 gig per lane 1.6T solutions. Our 1.6T solutions are poised to enable the next generation of AI accelerators. We are seeing similar success with our DCI products with 400 gig ZR shipping high volume, strong interest for our next generation 800 gig products and an expanding DCI customer base with design wins at multiple new data center customers.

Overall MRVL ranks 7th on our list of the best hardware stocks to buy. You can visit 15 Best Hardware Stocks According to Hedge Funds to see the other hardware stocks that are on hedge funds’ radar. While we acknowledge the potential of MRVL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MRVL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.