Marvell Technology Looks Undervalued as Artificial Intelligence Spending Surges
Key Points
Marvell Technology is one of the most undervalued AI stocks right now, and it's down by 25% this year.
A sale and acquisition have positioned the company to become a long-term winner in the AI data center boom.
A questionable rumor still weighs heavily on the stock despite Marvell Technology's CEO rebuking it.
- 10 stocks we like better than Marvell Technology ›
If you want to find undervalued artificial intelligence (AI) stocks, you have to start with ones that aren't receiving as much hype. Nvidia is the most well-known growth stock right now, and Palantir Technologies is another AI leader that has attracted plenty of investors.
However, fewer investors know about Marvell Technology (NASDAQ: MRVL), and a few controversial rumors have made the stock even cheaper. Marvell Technology is a custom AI chipmaker that investors may want to monitor.
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Dispelling the rumors
Image source: Getty Images
Marvell Technology looked undervalued for most of the year. Its revenue growth rates have steadily outpaced the stock's 25% year-to-date decline. However, Marvell took another hit when rumors swirled around that the company lost a lot of business from Amazon and Microsoft.
That type of news would be devastating for the company. AI chipmakers make most of their revenue from a small handful of tech companies, and losing two of the largest hyperscalers in the industry would limit future growth opportunities. Other tech companies may be wary of doing business with an AI chipmaker that lost Amazon and Microsoft.
However, Marvell Technology CEO Matt Murphy poured cold water on the rumors when speaking with CNBC's Jim Cramer. Murphy told viewers that Marvell did not lose any business from those tech giants.
The debunked rumor continues to weigh on the stock price, which presents an opportunity for long-term investors. However, the credibility around this rumor isn't the only reason investors should appreciate the dip in Marvell Technology stock.
Marvell's valuation hasn't moved as quickly as its revenue
Marvell Technology has a 23.5 forward P/E ratio and continues to post impressive revenue growth. The chipmaker boosted its sales by 37% year over year in the third quarter of its fiscal 2026, ended Nov. 1, while operating income increased by 23% year over year.
The net income figure for the third quarter isn't the best for gauging the stock since that number includes the proceeds from a $2.5 billion sale of its automotive Ethernet business. It's a one-off event that inflated Marvell Technology's net income growth, but the company has maintained a net profit margin of roughly 10% in previous quarters.
This isn't even the first quarter of strong growth for fiscal 2026. Marvell delivered 63% and 58% year-over-year revenue growth rates in the first and second quarters of fiscal 2026. Its revenue and net income are moving in the right direction despite its stock price suggesting that the complete opposite has happened.
Marvell Technology is locked into AI chip growth
Marvell's $2.5 billion divestiture gave it more capital while freeing up resources to prioritize custom AI chips. However, the company didn't just stop with selling off a slower part of its business. The AI chipmaker acquired photonic fabric provider Celestial AI for $3.25 billion. The total acquisition may be valued at $5.5 billion if certain sales objectives are achieved.
The deal should help Marvell Technology scale faster in the burgeoning AI data center industry and boost demand for its AI chips. AWS Vice President of Compute and Machine Learning Services Dave Brown praised the December acquisition, casting even more doubt into rumors that Marvell Technology lost business from two tech giants.
Marvell swapped a slow-growth business for a high-growth one that complements its AI ambitions nicely. Investors have not yet priced in this reality. Marvell shares traded above $100 per share to start the year, and it may be due for a rally to all-time highs soon enough.
If the AI chipmaker continues to post 30%-plus year-over-year revenue growth in fiscal 2027 and beyond, the mismatch between revenue growth and its current valuation will become more difficult to ignore.
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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends Marvell Technology and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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