Can Marvell Technology's AI Strengths Balance Persistent Industry Headwinds, This Analyst Has Answer

Susquehanna analyst Christopher Rolland reiterated a Positive rating on Marvell Technology, Inc MRVL with a price target of $70.

Rolland expects Inphi to be the highlight driven by AI attachment rate, but with strength here offset by ongoing challenges.

Marvell reports earnings on November 30. The analyst expects generally in-line results but weaker guidance as Storage, Carrier, and Networking headwinds persist, more than offsetting positive AI momentum. 

For DC, higher AI demand bodes well for Marvell's PAM4 DSPs (Inphi), DCI, Ethernet switching, and custom ASICs. 

Last quarter, Marvell increased their 2023 AI-related revenue target (previously $400 million, now higher) this year, suggesting the 2024 $800 million AI estimate was too low. 

With an attach rate of >1 DSP per GPU, Marvell benefits from the sizable demand Nvidia Corp NVDA is seeing with DGX/H100 deployments and likely additional benefits from Google's TPU infrastructure. 

For custom ASICs, visibility is limited, but the ramp appears on track as it reiterated the long-term annual opportunity of > $800 million. Meanwhile, management guided for modest improvement in storage (off a low base), but read-throughs point to weakness. 

Wireless checks were negative for Carrier Infra as Samsung Electronics Co SSNLF and Nokia Corp NOK noted weakness in North America and India. 

Wired also remains soft, as Coherent Corp COHR, Lumentum Holdings Inc LITE, and MaxLinear, Inc MXL suggested, but perhaps improving into 2024. 

While the Street is modeling a 10% Q/Q Carrier decline in 4Q, Rolland notes the company's outlook could be worse. 

Enterprise Networking checks also skewed negative, as Cisco Systems, Inc CSCO, Intel Corp INTC, and Advanced Micro Devices, Inc AMD have a more subdued outlook, while Arista Networks, Inc ANET and Juniper Networks, Inc JNPR saw strength.

Specifically, Cisco's guidance was weaker as the company believes one to two quarters of products are waiting to be implemented by customers. 

For Consumers, PS5 unit sales disappointed, and inventories rose another +24% Q/Q. 

While PC ODM checks have been soft of late, Rolland expects a modest impact as the company has de-emphasized client SSD/HDD controllers. For Auto/Industrial, the analyst expects generally in-line results, with Auto potentially benefiting from growing Ethernet attach while Industrial may see softness evidenced by recent broad-based results. 

For gross margins, Rolland expects expansion into 4Q as the mix improves. While the near-term may be soft outside AI, Rolland notes positive revisions to 2024 AI targets or forward-looking improvements in other segments could benefit the stock.

Price Action: MRVL shares traded lower by 3.37% at $54.48 on the last check Tuesday.

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