Broadcom (NASDAQ: AVGO) and Marvell Technology (NASDAQ: MRVL ) usually do not attract as much attention as the higher-growth chipmakers Nvidia (NASDAQ: NVDA).
But like Nvidia, both chip specialists are benefiting from the expansion of the artificial intelligence (AI) market. Let’s examine the AI-driven tailwinds for both companies and see which stock is the better chipmaking play right now.
The difference between Broadcom and Marvell
Broadcom has grown and changed over the past eight years. Singapore-based chipmaker Avago bought the original Broadcom in 2016, inherited the brand, and moved its headquarters to the US in 2018. The “new” Broadcom then expanded into the infrastructure software market by acquiring CA Technologies, cloud software giant VMware, and the company’s security division Symantec.
In the last quarter, Broadcom generated 58% of its revenue from its semiconductor business, which sells a variety of wireless, optical, and data storage chips. The remaining 42% of that revenue comes from infrastructure software. Broadcom mainly relies on it Apple for 20% of sales in fiscal 2022 and fiscal 2023 (which ended last October), but the acquisition of VMware – which closed last November – should reduce this percentage in fiscal 2024.
Marvell is best known for its data processing unit (DPU), which combines a CPU, network interface, and programmable data acceleration engine. It also sells infrastructure, Wi-Fi, and specialty chips — as well as networking and storage devices — for the cloud, 5G, automotive, enterprise networking, and AI markets. Marvell has also grown inorganically over the past decade, but has not acquired large software companies.
In the last quarter, Marvell generated 70% of its revenue from the data center market, while the rest was split between other end markets. One unnamed customer (probably Western Digital or Seagate) accounted for 24% of revenue in fiscal 2024 (which ends this February).
Why Broadcom and Marvell are both playing AI
Broadcom and Marvell both experienced strong sales of optical and network chips for data centers. The chip doesn’t handle AI tasks on its own, but it’s essential for transmitting massive amounts of data. So data centers upgrade their servers with Nvidia GPUs, they need to buy more Broadcom and Marvell chips.
Broadcom expects to generate at least $11 billion in AI chip revenue in fiscal 2024, which would equate to more than 21% of its full-year revenue. Marvell earned more than 10% of its revenue from AI chips in fiscal 2024, and expects that percentage to rise in fiscal 2025.
No chipmaker has played as directly into the AI ​​market as Nvidia, which generated 87% of its revenue from the data center market in the most recent quarter. However, both serve a more balanced mix of non-AI and AI markets.
Which of these chipmakers is much faster?
Broadcom’s revenue growth is expected to pick up thanks to its acquisition of VMware this year, but analysts expect it to continue growing after the purchase. Marvell made several acquisitions in fiscal 2023, but revenue fell 7% in fiscal 2024 as macro headwinds dampened growth in carrier, enterprise network, consumer, automotive, and industrial markets. Analysts see the slowdown continuing through fiscal 2025 until the macro environment is likely to improve in fiscal 2026.
|
Company |
Fiscal Year Current Revenue Growth Estimates |
Estimated Revenue Growth for the Next Fiscal Year |
EV/Revenue Ratio (Next FY) |
|---|---|---|---|
|
Broadcom |
44% |
16% |
17 |
|
Marvell |
(2%) |
33% |
12 |
Data source: Marketscreener. FY = fiscal year.
In terms of revenue, Marvell looks lower than Broadcom relative to its enterprise value (EV). But if we look at the gains reflected in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), Broadcom looks better.
|
Company |
Current Fiscal Year Adjusted EBITDA Growth Estimates |
Estimated Adjusted EBITDA Growth Next Fiscal Year |
EV/EBITDA Ratio (Next FY) |
|---|---|---|---|
|
Broadcom |
34% |
22% |
27 |
|
Marvell |
(9%) |
58% |
38 |
Data source: Marketscreener. FY = fiscal year.
Furthermore, Broadcom is consistently profitable on a generally accepted accounting principles (GAAP) basis, while Marvell is not. Marvell posted GAAP losses for the past four fiscal years as it grew, and analysts don’t expect it to return to profitability until fiscal 2026 — but that’s assuming it doesn’t make any bigger acquisitions.
Buy a better AI chip: Broadcom
Over the past 12 months, Broadcom’s stock is up 93% as Marvell’s stock is up 16%. Investors are clearly more impressed by Broadcom’s bold expansion of its software business, increased exposure to the AI ​​market, and stable GAAP profits. I believe these strengths will continue to prevail over Marvell – which has less exposure to the AI ​​market, less predictable growth rates, and steeper losses – for the foreseeable future.
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Leo Sun has a position in Apple. The Motley Fool has positions and recommends Apple and Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.
Better AI Chip Stocks: Broadcom vs. Marvell Technology was originally published by The Motley Fool
