Comparing AI Chip Market Players: Broadcom vs. Marvell Technology

In the booming realm of artificial intelligence (AI) chips, both Broadcom and Marvell Technology have positioned themselves within the same specialized market segment. As the PHLX Semiconductor Sector index celebrates a nearly 23% rise in 2024, it's clear that the demand for AI chips is fueling the industry's growth. However, not every semiconductor company has equally reaped the rewards of the market's advance this year.

Take for instance Broadcom, with its stock ascending by 19%, and Marvell Technology seeing a more modest 10% climb. Yet, these figures seem to belie the companies' successful surge in custom AI chip sales.

The question now for investors is which company's stock could be the prudent pick to capitalize on the burgeoning AI wave. We delve into their respective positions to help discern the better investment.

The case for Broadcom

Industry forecasts by Morgan Stanley suggest a rapid growth trajectory for the AI chip market, with application-specific integrated circuits (ASICs) potentially grabbing a 30% slice of the $182 billion AI chip market by 2027. This sets up a nearly $55 billion opportunity for players such as Broadcom and Marvell.

Broadcom appears to have an edge as the current vanguard of the ASIC market, boasting a substantial 35% market share. Their AI chip sales soared to $2.3 billion in the first fiscal quarter of 2024, marking a fourfold increase compared to the previous year. With a solid client roster that includes heavyweights like Meta Platforms and Alphabet, Broadcom's AI-related revenues are projected to at least double this year, reaching up to $16 billion in 2025 and potentially $20 billion in 2026, as per Melius Research data.

Bright prospects have led analysts to revise Broadcom's revenue estimates upward for the coming years. There's even speculation from Melius Research analyst Ben Reitzes that if Broadcom captures just one more major client, its AI revenue could skyrocket to $50 billion annually.

Broadcom's potent growth stems from its robust market position as well as gaining new customers like possibly Amazon, Apple, or ByteDance. With the growing trend of companies designing their own AI chips, Broadcom's prospects look promising.

The case for Marvell Technology

While Broadcom leads the sector, Marvell is on its heels, projecting at least $1.5 billion in AI revenue for the current fiscal year. Yet, Marvell faces challenges across various segments including enterprise networking and carrier infrastructure, each impacting its earnings.

Despite lower comparative earnings, Marvell CEO Matt Murphy expects AI-driven revenue to rise by at least $1 billion in the coming fiscal year. Moreover, Marvell's data-center revenue witnessed an 87% hike owing to its AI chips. Analysts, hence, anticipate a significant growth spurt for Marvell beginning the next fiscal year.

Though Marvell lags behind Broadcom in terms of market share and revenue, its smaller base allows for a potentially faster growth pace. Additionally, Marvell's stock trades at a more appealing valuation of 11 times sales compared to Broadcom's 15, making it potentially a more affordable investment with upside growth potential.

The verdict

Ultimately, while Broadcom currently dominates the custom AI chip market segment and shows strong growth potential, Marvell's smaller scale could translate to more substantial relative growth, combined with a more attractive valuation. Investors may find Marvell Technology to be the preferable choice among the two for its potential to deliver rapid growth at a lower cost.

Broadcom, Marvell, AI