Marvell's Outlook Says Revenue and Earnings Could 10x in 5 Years. Here's Why the Stock's a Bargain Even If It Falls Short.

Marvell Technology (NASDAQ: MRVL) could be a much bigger business in just a few years. At its investor day this week, management provided a long-term outlook for its business, which spans networking and interconnect chips for data centers as well as custom AI semiconductors.

The company says it could bring in as much as $90 billion in revenue in fiscal 2031, which ends in January of that year. Not only that, but it expects earnings to grow even faster.

That implies 10x growth in the business in just five years. While the stock climbed in response to the strong outlook, it still looks like a buying opportunity at today's price. What's more, it could still be a value if management falls short of its goals.

Image source: The Motley Fool.

What's driving growth for Marvell?

Marvell believes interconnect, which moves data between individual AI accelerator chips, will become the biggest bottleneck in artificial intelligence over the next few years. It cited recent comments from Amazon, Alphabet, Meta Platforms, and Microsoft to back up that claim. All four companies are working to increase the efficiency of data movement throughout their systems.

That's where Marvell's chips come into play. Management sees the interconnect market growing 65% per year from 2025 through 2030, from about $5 billion to $65 billion. Marvell thinks it can maintain its 50% market share, resulting in $32.5 billion in revenue. It'll also maintain a share of the growing traditional networking chip market, adding another $10 billion to its fiscal 2031 forecast.

The other major trend driving growth for Marvell is custom silicon, or XPUs. Amazon, Alphabet, Meta, and Microsoft all have their own custom chips for AI training and inference. OpenAI also started deploying its own custom chip this year.

Custom chips typically cost less up front than GPUs and produce better performance for specific tasks. As such, they should continue to grow faster than GPU sales.

Marvell's management sees XPUs and related chips growing 55% per year through 2030, reaching a $235 billion market. It also believes it can grow its market share, accounting for around $30 billion of that market. That could be helped by a ramp-up of its design with Microsoft next year, as well as a recent agreement with Google that could be worth up to $120 billion in revenue through fiscal 2033.

Why Marvell could be a bargain right now

Marvell shares are trading for a forward P/E ratio of 67 after shares climbed higher on management's strong outlook. That number falls to about 41 times expectations for fiscal 2028 earnings (for the year mostly in calendar 2027). But even that high price could still be a bargain.

The analyst consensus currently calls for fiscal 2028 revenue of $18.5 billion versus $20 billion called for by management. That already implies a significant 7.5% shortfall relative to management's outlook, though this could be due to delays in analysts updating their models.

Even if fiscal 2031 revenue only climbs to $60 billion, 25% short of management's midpoint, that would represent average revenue growth of 48% (based on the analyst consensus) between fiscal 2028 and fiscal 2031. Earnings will grow even faster, driven by operating leverage and plans to return approximately 50% of excess cash flow to shareholders.

With that kind of growth potential, trading for just 41 times next year's earnings looks like a great price for Marvell stock. That multiple will likely move lower over time, but the stock price can still move higher thanks to the robust earnings growth the company can achieve. What's more, there's plenty of upside if management gets closer to its targets, but the current price still offers a margin of safety for investors.

Adam Levy has positions in Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Marvell Technology, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.