Marvell: Eyes On Earnings Following A Soft Outlook In March (NASDAQ:MRVL)

The Information Technology sector continues to trade with a premium valuation. According to FactSet, the IT space sports a 26.5x forward operating earnings multiple – better than six turns more expensive than the S&P 500. The P/E is also above the sector’s 5- and 10-year averages. Of course, the premium is at least partly warranted, given the ongoing boom in AI. The semiconductor industry now accounts for about 10% of the S&P 500, larger than some sectors. But not all AI plays are created equal.

I reiterate a hold rating on shares of Marvell Technology (NASDAQ:MRVL). I see the stock as fairly valued today, but big EPS growth ahead has the potential to result in a higher valuation down the line. For now, following soft Q1 guidance for FY 2025, I am keeping my expectations in check.

Sector Valuations: I.T. Remains the Most Richly Priced Amid High EPS Growth Expectations

According to Bank of America Global Research, Marvell is a leading fabless supplier of high-performance standard and semi-custom products with a core strength in developing complex System-on-Chip architectures, and integrating analog, mixed-signal, and digital signal processing functionality. Marvell’s broad portfolio of IP spans computing, optics, networking, storage, and security and addresses the enterprise, cloud, telecom, auto, and industrial markets.

Back in March, MRVL reported a mixed Q4 2024 earnings report. Quarterly non-GAAP EPS of $0.46 was in line with estimates, while GAAP per-share earnings fell just shy of expectations. $1.43 billion of revenue, up 0.7% from year-ago levels, was about on par with street estimates.

Shares plunged by more than 11% in the wake of the Q4 report – its worst post-earnings reaction in at least the last three years, according to Option Research & Technology Services (ORATS). It was the firm’s Q1 outlook that concerned investors.

The management team saw $1.15 billion of revenue for the quarter that just ended, far below the $1.37 billion Wall Street forecast. Keep your eye on the company’s Q1 gross margins – guidance projected 62% to 63% with adjusted EPS of $0.18 to $0.28.

Still, MRVL announced a healthy $3 billion share repurchase program and the stock remains a darling among the sell-side despite a slew of EPS downgrades. Evercore, specifically, sees Marvell as a key beneficiary of the AI boom. For the Q2 report, ORATS data show that there is an 8.3% straddle priced in.

On valuation, analysts at BofA see earnings falling about 11% this year, but then recovering very strongly in 2026. Per-share profits are then expected to approach $3 (non-GAAP) by 2027. The Seeking Alpha consensus view is more sanguine, however. $2.50 of out-year operating EPS is forecast, while revenue growth of more than 30% in FY 2026 suggests a robust rebound is in store.

Dividends, meanwhile, are expected to hold steady at $0.24 annually, making for a low yield, while the firm’s EV/EBITDA multiple is very high compared to the broader market’s. But MRVL is free cash flow positive, with its FCF yield expected to rise in the quarters ahead.

Marvell: Earnings, Valuation, Free Cash Flow Forecasts

Given the high growth expected with MRVL, if we assume $2.49 of non-GAAP EPS in 2026, still a year out, and apply the stock’s 5-year average multiple of 30, a few turns above the tech sector average, per FactSet, then shares should be near $75.

That is also a mid-40s forward 12-month operating P/E. If the firm can hit $3 or more of EPS in 2027 and sustain a 20% bottom-line growth rate, then there is indeed upside potential to the valuation, but MRVL remains an AI show-me story in my view.

High EPS Growth, But Likewise Elevated Multiples

Compared to its peers, Marvell features a weak valuation grade considering the lofty multiples listed above. But its growth trajectory is among the best you’ll find in the Information Technology sector, so it should eventually mature into the valuation.

With robust profitability trends amid the growth in AI, big sales growth should translate into high earnings via operating leverage. Share-price momentum appears healthy, but I will note a few concerns on the chart later in the article. Finally, after the mixed quarter, analysts have collectively trimmed their outlook, so the Revisions grade is very low.

Competitor Analysis

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q1 2025 earnings date of Thursday, May 30 AMC with a conference call immediately after the numbers cross the wires. You can listen live here. No other volatility catalysts are seen on the calendar.

Corporate Event Risk Calendar

The Technical Take

MRVL has been a disappointment in the last three months. Shares are up just 2.5% compared to big gains among other AI plays and Semiconductor industry stocks. Of course, the current consolidation has come after a very strong share-price return. But notice in the chart below that the momentum view is mixed and messy. I see emerging support in the low to mid-$60s, and that is also where the long-term 200-day moving average comes into play.

In January, I noted that a rally through the mid-2023 highs could result in a move up to $90. That nearly came to pass when MRVL rose through $85, but the disappointing Q1 report put the kybosh on that rally. On the chart, the jump to the mid-$80s came alongside a lower high in the RSI momentum oscillator at the top of the graph.

Now that the short-term 50-day moving average has flattened out, it’s clear that the uptrend is at the very least taking a hiatus. Still, higher lows have been notched since early last year, and a high amount of volume by price lies below where the stock sells at today.

Overall, MRVL’s consolidation may persist in my view.

MRVL: Shares Steady in 2024, Weaker Momentum

The Bottom Line

I reiterate a hold rating on MRVL. The toned-down outlook in the Q1 report could be a bit of sandbagging by its management team, but the momentum situation is not all that strong today ahead of what is expected to be a significant move in the stock post-earnings.