Marvell Technology (MRVL -10.46%) doesn’t attract as much attention as many of its chipmaking peers, but its stock has still rallied about 250% over the past five years. That easily beat the S&P 500‘s gain of nearly 90% during the same period.
Marvell steadily grew as it acquired smaller companies and sold plenty of chips for the cloud, 5G, automotive, enterprise networking, and artificial intelligence (AI) markets — but its market capitalization of $66 billion still makes it smaller than many other semiconductor companies. Could it eventually become a trillion-dollar chipmaker by 2050?
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How fast has Marvell been growing?
Marvell produces data processing units (DPUs) that bundle CPUs, networking interfaces, and programmable data acceleration engines together. It also sells infrastructure, Wi-Fi, and custom chips, as well as networking and storage devices.
It’s a fabless chipmaker that outsources its production to third-party foundries, and it constantly expands through acquisitions. It went public on June 27, 2000, and a $10,000 investment in its IPO would be worth over $200,000 today.
From fiscal 2001 to fiscal 2024, which ended this February, Marvell’s revenue grew at a compound annual growth rate (CAGR) of 14%. It grew organically, but it also acquired a long list of companies, including Galileo Technologies and Cavium.
How much more will Marvell grow?
From fiscal 2024 to fiscal 2027, analysts expect Marvell’s revenue to increase at a CAGR of 15%. It struggled with macro headwinds for the carrier, enterprise networking, consumer, automotive, and industrial end markets over the past year, but it still benefited from the robust growth of its cloud, data center, and AI-oriented businesses.
Marvell expects to benefit from the secular expansion of the AI market over the next few years. It generated more than 10% of its revenue from AI-related chips in fiscal 2024, compared with approximately 3% of its revenue in fiscal 2023. Most of that growth came from optical chips that were tethered to shipments of AI accelerator chips such as Nvidia‘s data center GPUs. During the latest conference call, CEO Matt Murphy called the AI market the company’s “key growth driver.”
But unlike Nvidia, which generated 87% of its revenue from its AI-oriented data center chips in its latest blowout quarter, Marvell still sells a lot of chips to more macro-sensitive markets. In other words, it won’t grow as rapidly as Nvidia or other AI-centric chipmakers — but its other businesses will probably recover as the macro environment improves.
Marvell’s inorganic expansion has also squeezed its generally accepted accounting principles (GAAP) profits in recent years. It’s expected to stay unprofitable on a GAAP basis in fiscal 2025 as it integrates its latest acquisitions, but it’s expected to turn profitable again in fiscal 2026 and more than double its profit in fiscal 2027.
How much will Marvell be worth in 2050?
Marvell’s stock isn’t cheap at 12 times this year’s sales, and its current valuation seems to have been slightly inflated by the buying frenzy in AI stocks. But Broadcom, which is growing at a similar rate and also expands aggressively through acquisitions, looks even pricier at 13 times this year’s sales.
If Marvell continues to grow its top line at a CAGR of 15% from fiscal 2024 to fiscal 2050, it could generate $200 billion in revenue by the final year. It would need to trade at only five times sales by then to reach a $1 trillion valuation.
However, it’s impossible to tell if Marvell can maintain that steady growth rate over the next 26 years. It could face tough recessions, cyclical slowdowns, and intense competition from other chipmakers. It could even “diworsify” its business with bad acquisitions and get trapped in a cycle of cutting costs instead of growing its sales.
Marvell certainly has a viable path toward becoming a $1 trillion chipmaker by the middle of the century. But for now, investors should pay closer attention to the integration of its latest acquisitions, the macro environment, and its sales of AI-driven optical chips. They should also be mindful of its historically high valuations — and realize that it might be a better idea to gradually accumulate shares of the stock over the next few years.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.