Behind Marvell Tech's Multi-Fold Growth: R&D, Acquisitions And AI Infrastructure

Marvell Technology, Inc.’s MRVL stock has surged about 350% in the last five years as the artificial intelligence frenzy has triggered demand for hardware and infrastructure.

The company supplies data infrastructure semiconductor solutions, spanning the data center core to the network edge. It is a fabless semiconductor supplier of high-performance standard and semi-custom products with core strengths in developing and scaling complex System-on-a-Chip architectures, integrating analog, mixed-signal, and digital signal processing functionality.

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Its solutions empower the data economy and enable the data center, enterprise networking, carrier infrastructure, consumer, and automotive/industrial end markets.

Aswath Damodaran of the Stern School of Business at New York University flagged how computer chips have become part of every consumer good in the last four decades, from appliances to automobiles.

He noted that semiconductor chip customers have also shifted from personal computers to smartphones, with demand emerging from automobile, crypto, and gaming companies in the last decade.

Apple Inc. AAPL became the first trillion-dollar company in 2018 as its iPhones gained traction. It is currently worth over $3.4 trillion. Nvidia Corp NVDA hit the trillion-dollar market cap in 2024 and is currently worth ~ $ $3.2 trillion, backed by its AI processors.

Damodaran also said that data processing has emerged as a demand driver. He highlighted the potential upside of the automobile business, backed by automated driving and other enhancements.

Tesla Inc. TSLA also reached a trillion-dollar valuation, supported by Elon Musk’s EVs and autonomous driving technology.

Reportedly, a third of the ten global companies worth over $1 trillion came from the chip industry, as 2024 proved immensely beneficial for the U.S. semiconductor sector.

For Marvell, China accounted for 42%- 44% of its revenue between fiscal 2022 and 2024, while the U.S. generated 11%- 14%.

The company reported a 7% decline in fiscal 2024 revenue after a 33% growth in fiscal 2023 due to a decrease in sales in the majority of its end markets, including data center, enterprise networking, consumer, and carrier infrastructure, partially offset by growth in the automotive/industrial end market.

The decline coincides with the slowdown in Chinese demand, which impacted the company’s gross margin, which remained at 42% in fiscal 2024 versus 50% in 2023.

Semiconductor companies have adopted organic growth strategies (e.g., investing in research and development, product innovation, and operational efficiency improvements) or inorganic growth strategies (via acquisitions, mergers, or strategic partnerships) to expand their market share.

R&D consumed 32%- 34% of Marvell’s revenue between fiscal 2022 and 2024, compared to bigger rival Broadcom Inc’s AVGO 15%- 18%. In absolute terms, Broadcom’s R&D stood at $9.3 billion in fiscal 2024 on revenue of $51.6 billion versus Marvell’s R&D at $1.9 billion on revenue of $5.5 billion.

In relative terms, Marvell’s R&D margin is comparable to that of British chip designer Arm Holdings ARM. Arm’s fiscal 2024 R&D margin stood at 61% on revenue of $3.23 billion. Still, Marvell posted a gross margin of above 40%, which is testimony to its pricing power or moat.

Marvell stock surged over 57% in the last 12 months, topping S&P Global Semiconductor Index’s 11%. Marvell commands an EV/EBITDA multiple of 262.5x versus Arm’s 283.1x and Broadcom’s 47.9x.

Marvell’s dividend yield is 0.20%, compared to 1.00% for Broadcom or 0.5% for Micron Technology, Inc. MU.

Marvell’s inorganic growth strategies include mergers and acquisitions. On October 5, 2021, Marvell completed the acquisition of Innovium, Inc., a provider of networking solutions for cloud and edge data centers, for $1.0 billion. On April 20, 2021, Marvell completed the acquisition of Inphi, a provider of high-speed data movement enabled by optical interconnects, for $9.9 billion.

Marvell’s operating cash flow, net of capital expenditures, helped it generate $1.02 billion in free cash flow as of February 3, 2024, compared to $1.07 billion in 2023 and $632 million in 2022.

Excess cash flows above capex help a company pay dividends and/or buyback shares, thereby adding to shareholder value. A company may also use the surplus funds for acquisitions and debt repayment to fuel growth.

Marvell’s positive AI catalysts for 2025: OpenAI, SoftBank Corp SFTBF SFTBY, and Oracle Corp ORCL launched a $500 billion joint venture, Stargate, to build AI infrastructure in the U.S.

Microsoft Corp MSFT committed $80 billion for AI-driven data centers. Alphabet Inc‘s GOOG GOOGL Google earmarked over $1 billion for its OpenAI rival Anthropic.

BofA Securities Vivek Arya expressed optimism over AI infrastructure providers like Marvell, which are backed by AI compute/networking demand. He expects Application-Specific Integrated Circuit (ASIC) vendors like Marvell and Broadcom (which hit the trillion dollars market cap in 2024) to bag over a 10%-15% share of the overall accelerator market as Nvidia GPUs dominate with their 80%+ share.

JPMorgan’s Harlan Sur noted that Marvell is well-positioned to significantly exceed its previous AI target of $2.5 billion in calendar 2025. This is backed by AI optical/copper networking products and two AI ASIC programs for Amazon.Com Inc AMZN, Amazon Web Services, and Google.

Marvell is a holding in 200 US-traded ETFs. Investors can gain exposure to the stock through Vanguard Total Stock Market ETF VTI

and Invesco QQQ Trust, Series 1 QQQ.

MRVL Price Action: Marvell Technology stock closed up by 1.97% to $112.50 on Monday.

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