The artificial intelligence (AI) chip market has been dominated by Nvidiawhich explains why the semiconductor giant recently reported another set of stellar results for the third quarter of fiscal 2025 (which ended October 27).
The chipmaker’s revenue soared 94% year over year to $35.1 billion, while its immense pricing power helped it more than double its adjusted profit to $0.81 per share . However, the market reaction to Nvidia’s stellar results has been lukewarm. In fact, the stock has lost momentum and is down since the publication of its last report.
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One reason this could be the case is Nvidia’s high valuation and fears of a slowdown in the company’s growth trajectory. The pressure on margins that will be created by the rapid ramp-up of production of Nvidia’s next generation of AI chips is likely another reason why the stock is on shaky ground despite its impressive report.
However, there is another chip stock that isn’t as expensive as Nvidia and has racked up healthy gains over the past three months. This company is scheduled to report its next results on December 3, and there’s a good chance its performance will be strong enough to give the stock a nice boost.
Let’s take a closer look at this name.
While Nvidia is the go-to supplier of graphics processing units (GPUs) deployed in data centers for AI training and inference, there is another family of chips that is gaining acceptance in AI servers. Application-specific integrated circuits (ASICs) are custom chips that are different from GPUs.
While GPUs are used for general computing purposes and are capable of processing huge amounts of data in a parallel manner, ASICs are used to perform specific tasks. The advantage of ASICs is that since they are programmed to perform a specific task, they are more efficient in performing that task because they consume less power.
Unsurprisingly, the market for AI-specific ASICs is expected to grow at an annual rate of 32% through 2030, according to market research firm Lucintel. One way for investors to make the most of this market is to invest in stocks. Marvell Technology(NASDAQ:MRVL)a custom chip designer who has seen a nice turnaround in fortunes thanks to AI.
Marvell is expected to report third-quarter fiscal 2025 results after the market closes on Dec. 3. The company’s shares have surged 33% since releasing its previous quarterly report on August 29. growing demand for Marvell’s custom chips, which help it offset weak demand in other segments.
Specifically, the chipmaker’s overall revenue declined 5% year over year in the fiscal second quarter, to $1.27 billion. It is non-GAAP Earnings (adjusted) fell to $0.30 per share, compared to $0.33 per share in the same quarter last year. However, a stupendous 92% year-over-year increase in Marvell’s data center revenue, to $881 million, overshadowed its decline in revenue and profits.
The company expects revenue of $1.45 billion for the fiscal third quarter, which would be a slight improvement over last year. Consensus estimates project that Marvell will end the current fiscal year with $5.54 billion in revenue, which would be almost flat compared to the same period last year. Additionally, its earnings are expected to decline to $1.46 per share from $1.51 per share in the prior fiscal year.
The good news is that Marvell’s earnings and bottom line are expected to accelerate significantly over the next two fiscal years.
Given the health of the custom AI chip market, it’s easy to see why analysts expect Marvell to accelerate. The company expects to end fiscal 2025 with $1.5 billion in AI revenue, a figure expected to grow to $2.5 billion in fiscal 2026. More Important Still, Marvell expects a large increase in its addressable market thanks to AI. The company expects the total addressable market (TAM) of its data centers to grow from $21 billion in 2023 to $75 billion in 2028.
Marvell points out that $43 billion of this TAM is attributable to growing demand for custom computer chips. At the same time, another $26 billion will come from the data center switching and interconnection markets. It’s worth noting that Marvell is making progress in both areas. It expects a third of its AI revenue for the current fiscal year to come from custom compute chips, with the rest coming from the AI-focused data center connectivity space.
More importantly, Marvell has managed to attract new customers for its AI chips. This was evident from CEO Matt Murphy’s comments during the previous earnings conference call: “Our custom silicon programs for AI are progressing very well with our first two chips now entering volume production. We have already won the development of new custom programs, including projects with the new Tier 1 AI client that we announced earlier this year, are also on track to achieve key milestones.”
As such, there’s a good chance that Marvell will be able to deliver better-than-expected results and top it all off with a sunny outlook. That’s why buying this stock before December 3 could be a smart move, as it’s currently trading at 37 times forward earnings, which isn’t that expensive considering how quickly its financial results are expected to grow over the next two years. .
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool Ranks and Recommends Nvidia. The Motley Fool recommends Marvell technology. The Mad Motley has a disclosure policy.
