Marvell Technology: The Stock Is Down 39% From Its High. Time to Buy the Dip? (NASDAQ: MRVL)

Marvell Technology (NASDAQ: MRVL) shareholders have been on quite the roller-coaster ride this year. If you bought shares on Jan. 2 (the market was closed on Jan. 1) and only checked your position now, you're up more than 120%, and you're probably pretty happy with that result. But if you've paid a bit more attention, you may have noticed that the stock has heavily sold off recently and is down 38% from its all-time high. The question investors are asking is whether now is the time to buy the dip or if this sell-off was warranted.

I think examining the reason behind its initial rise will give investors clues as to whether the sell-off was warranted (and I think the answer is likely a resounding yes).

Image source: The Motley Fool.

Marvell got a boost from a reputable source

Marvell Technologies' stock got a major boost from one of its clients when Nvidia (NASDAQ: NVDA) CEO Jensen Huang stated that he believes Marvell could be one of the next $1 trillion companies. At the time, Marvell was just shy of a $200 billion business, so investors got excited and bought up the stock. Now, Marvell's stock is back below the price where it was when Huang made those comments.

I think that's an OK sell-off, as there wasn't a whole lot of substance behind that rally besides one person's opinion (even if that person is extremely well informed about the state of the chip space). But after giving up those gains, is Marvell worth an investment?

Marvell makes networking equipment for data centers and smartphones. It's also getting involved in the application-specific integrated circuit (ASIC) business, and has deals with Microsoft and Amazon, much like Broadcom has deals with several other AI hyperscalers for custom AI chip design and production. This could turn into a huge business for Marvell, as these types of computing units are starting to gain massive momentum because when used for the narrow types of workloads they are designed for, they're more cost-efficient than general-purpose GPUs.

Marvell is still ramping up this business unit, but Wall Street analysts expect it to bring strong growth; consensus expectations are for 41% revenue growth this year and 45% next year. For most businesses, those would be stellar growth rates that would earn applause. In the AI industry, they're about average among the chip companies. So, Marvell is thriving and doing better, but it isn't anything special, at least from a growth standpoint.

Despite that, Marvell still trades at a hefty premium of 46.6 times forward earnings and 30.4 times next year's earnings.

MRVL PE Ratio (Forward) data by YCharts.

There are several AI stocks (like Nvidia and Broadcom) that are growing faster than Marvell and are cheaper, and I think those two make more sense to invest in than Marvell does. Until Marvell starts to generate growth that significantly outpaces that of some of the industry giants, I think it would be better for investors to stick to the established players in this space.

Keithen Drury has positions in Amazon, Broadcom, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Amazon, Broadcom, Marvell Technology, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.