Broadcom (NASDAQ: AVGO) and Marvel Technology (Nasdaq: MRVL) They typically don’t get as much attention as the higher-growth semiconductor companies. NVIDIA (NASDAQ: NVDA).
But like Nvidia, both diversified chip specialists are benefiting from the rapidly expanding artificial intelligence (AI) market. Let’s look at the AI tailwinds for both companies and see which stocks are the best for chip manufacturing right now.
Difference Between Broadcom and Marvell
Broadcom has expanded and transformed over the past eight years: Singapore-based chipmaker Avago acquired the original Broadcom in 2016, inherited the brand, and moved its headquarters to the United States in 2018. The “new” Broadcom has since expanded into the infrastructure software market, acquiring CA Technologies, cloud software giant VMware, and Symantec’s enterprise security division.
In its most recent quarter, Broadcom generated 58% of its revenue from its semiconductor business, which sells a wide range of wireless, optical and data storage chips. The remaining 42% came from infrastructure software. Broadcom is particularly apple The company expects its own products to account for 20% of its revenue in fiscal 2022 and 2023 (which ended last October), but that percentage should decline in fiscal 2024 due to its acquisition of VMware, which closed last November.
Marvell is best known for its data processing units (DPUs), which bundle a CPU, network interface, and programmable data acceleration engine. It also sells infrastructure, Wi-Fi, custom chips, and networking and storage devices for the cloud, 5G, automotive, enterprise networking, and AI markets. Marvell has expanded inorganically over the past decade as well, but did not acquire a major software company.
Marvell generated 70% of its revenue from the data center market in its most recent quarter, with the rest distributed across other end markets. Western Digital or Seagate) accounted for 24% of revenue for fiscal year 2024 (ending February this year).
Why Broadcom and Marvell are Investing Together in AI
Broadcom and Marvell are seeing strong sales of optical and networking chips for data centers, which don’t handle AI tasks on their own but are essential for carrying huge amounts of data, so as data centers upgrade their servers with Nvidia’s GPUs, they’ll need to buy more of those chips.
Broadcom expects to generate at least $11 billion in AI chip revenue in fiscal 2024, representing more than 21% of its expected full-year revenue. Marvell sees more than 10% of its revenue coming from AI chips in fiscal 2024, with that percentage rising in fiscal 2025.
Neither chipmaker is directly tapping into the AI market like Nvidia, which generated 87% of its revenue from the data center market in its most recent quarter, instead serving a more balanced mix of non-AI and AI-driven markets.
Which of these chipmakers is growing faster?
Broadcom’s revenue growth will be inflated by its acquisition of VMware this year, but analysts expect it to continue expanding after the deal. Marvell made several acquisitions in fiscal 2023, but revenue declined 7% in fiscal 2024 as macroeconomic headwinds suppressed growth in carrier, enterprise networking, consumer, automotive, and industrial markets. Analysts see this slowdown continuing through fiscal 2025 before the macroeconomic environment improves, possibly in fiscal 2026.
|
company |
Projected revenue growth for this fiscal year |
Projected Revenue Growth for the Next Year |
EV/Sales ratio (next fiscal year) |
|---|---|---|---|
|
Broadcom |
44% |
16% |
17 |
|
Marvel |
(2%) |
33% |
12 |
Data source: Marketscreener. FY = fiscal year.
In terms of revenue, Marvell looks a bit cheaper than Broadcom relative to its enterprise value (EV), but when you look at projected earnings before adjusted interest, taxes, depreciation and amortization (EBITDA), Broadcom looks like the better value.
|
company |
Adjusted EBITDA growth rate (current year) |
Expected adjusted EBITDA growth rate for next fiscal year |
EV/EBITDA multiple (next period) |
|---|---|---|---|
|
Broadcom |
34% |
twenty two% |
27 |
|
Marvel |
(9%) |
58% |
38 |
Data source: Marketscreener. FY = fiscal year.
Moreover, Broadcom has been consistently profitable under generally accepted accounting principles (GAAP), while Marvell has not: Marvell has accumulated GAAP losses for each of the past four years as it has expanded, and analysts don’t expect it to return to profitability until fiscal 2026, assuming the company doesn’t make any more big acquisitions.
Buying a Better AI Chip: Broadcom
Over the past 12 months, Broadcom’s stock has risen 93%, while Marvell’s stock has risen 16%. Investors have clearly been impressed with Broadcom’s bold expansion of its software business, growing exposure to the AI market, and stable GAAP earnings. We believe these strengths give Broadcom an edge in the near term over Marvell, which has less exposure to the AI market, less predictable growth, and larger losses.
Should I invest $1,000 in Broadcom right now?
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Leo Sun invests in Apple. The Motley Fool invests in and recommends Apple and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
Better AI Chip Stocks: Broadcom vs Marvell Technology was originally published by The Motley Fool.
