Why Marvell Technology Rallied 19.2% in December

Shares of chipmaker Marvell Technology (MRVL) saw a significant increase of 19.2% in December, as reported by S&P Global Market Intelligence. This notable rally came after a month filled with important developments for the company.

In December, Marvell reported its fiscal third-quarter earnings, which came alongside several positive updates related to its technology and strategic partnerships. By year-end, the stock had risen a total of 83%.

Strong Earnings Report

During the fiscal third quarter, Marvell achieved a revenue increase of 7%, reaching $1.52 billion. Additionally, the company's non-GAAP earnings per share grew by 5% to $0.43. While these growth numbers may not seem extraordinary at first glance, they did surpass analyst expectations. Furthermore, the growth in Marvell's key segments showed much more promise.

Marvell produces a range of chips used in data centers, enterprise networking, telecommunications, consumer electronics, and various auto and industrial applications. Currently, most of these segments are facing a downturn, with the exception of the data center segment.

Importantly, the data center segment is thriving, experiencing a remarkable 98% year-over-year growth. This surge can be attributed to Marvell's specialized artificial intelligence (AI) chips, developed in collaboration with major cloud providers, and its comprehensive range of data center networking chips. Notably, the data center segment has grown to represent 73% of Marvell’s revenue, a significant increase from 39% the previous year.

The management team at Marvell is optimistic about future growth, projecting revenue of $1.8 billion for the current quarter. This forecast indicates a sequential growth of 19% or an impressive 99% on an annualized basis.

Strategic Partnerships and Innovations

The positive news continued with Marvell announcing a five-year collaboration with Amazon (AMZN) to enhance AI data center infrastructure. This partnership aims to develop custom application-specific integrated circuits (ASICs) for cloud AI as well as digital and optical networking chips.

Furthermore, Marvell showcased its commitment to innovation by introducing a new memory interface that significantly enhances the speed and efficiency of ASICs processing high-bandwidth memory. The company also revealed the industry's first 1.6 terabyte-per-second PAM4 digital signal processor, designed for fast AI communications.

Investing in Marvell: What You Should Consider

Currently, Marvell's shares are priced at 43 times the projected earnings for the coming year, which raises concerns about valuation. Whether it is a good time to buy depends on the sustainability of the AI market expansion. If there is a slowdown following the rapid growth seen over the past two years, the stock valuation may appear inflated. Conversely, if the demand for AI technology continues to grow throughout the remainder of the decade, Marvell could maintain strong performance, even at these elevated levels.

Marvell, Technology, Stocks