Why Marvell Technology Saw a 19.2% Increase in December

In December, shares of chipmaker Marvell Technology (MRVL 4.07%) experienced a remarkable increase of 19.2%, as reported by S&P Global Market Intelligence. This surge followed a month of significant activity for Marvell, which included the announcement of its fiscal third-quarter earnings and several positive developments regarding its technology and partnerships.

Marvell's stock finished the year strong, overall rising 83% throughout the year.

Positive Financial Results

During its fiscal third quarter, Marvell reported a 7% revenue increase, totaling $1.52 billion. Additionally, adjusted earnings per share grew by 5%, reaching $0.43. Although these numbers may not seem extraordinary, they surpassed analysts’ expectations. Importantly, the growth in Marvell's main segments painted a much more optimistic picture.

Marvell manufactures a diverse range of chips that serve various sectors, including data centers, enterprise networking, telecommunications, consumer electronics, and auto/industrial applications. Most of these segments are currently facing economic challenges, except for the data center segment.

In fact, the data center division is thriving, showing an impressive 98% year-over-year growth. This success is attributed to Marvell's custom artificial intelligence (AI) chips, developed in collaboration with major cloud service providers, as well as its data center networking chip offerings. Notably, the data center segment has become increasingly significant, now accounting for 73% of Marvell's overall revenue, a jump from 39% just a year ago.

Looking ahead, management is optimistic about future growth, projecting revenue of $1.8 billion for the current quarter. This forecast implies a sequential growth of 19% or an annualized growth rate of 99%.

Strategic Partnerships and Innovations

The positive news for Marvell extended beyond its earnings report. At the beginning of December, Marvell and its significant client, Amazon (AMZN 1.80%), announced a five-year agreement to enhance their collaboration on AI data center infrastructure. This partnership includes the development of custom ASICs (application-specific integrated circuits) for cloud AI applications, as well as digital and optical networking chips.

In addition, Marvell showcased its innovative capabilities by unveiling a new type of memory interface that significantly increases the speed and efficiency of ASICs processing high-bandwidth memory. Furthermore, Marvell introduced the first 1.6 terabyte-per-second PAM4 digital signal processor, designed to enable fast AI communications.

Investment Considerations for Marvell Shares

Currently, Marvell shares are priced at 43 times the earnings estimates for the next year, which may be seen as high. Whether or not to purchase Marvell shares depends on the sustainability and longevity of the AI expansion. A potential period of consolidation could follow two years of rapid growth, rendering the stock possibly overvalued. However, if the AI buildout continues robustly into the next decade, Marvell could maintain a positive performance, even at these elevated price levels.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Billy Duberstein and/or his clients have positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool also recommends Marvell Technology. The Motley Fool has a disclosure policy.

Marvell, Technology, Stock