In the realm of semiconductor technology, the limelight often shines brightest on high-growth entities such as Nvidia (NASDAQ: NVDA), known for their significant contributions and pioneering efforts in the industry. However, diving deeper into the sector reveals other key players like Broadcom (NASDAQ: AVENO) and Marvell Technology (NASDAQ: MRVL), which, despite their more diversified portfolios, are carving out crucial roles for themselves, especially in the rapidly growing artificial intelligence (AI) domain.
Both these companies, much like Nvidia, are riding the AI wave and standing to benefit immensely from the market’s expansion. A closer look at Broadcom and Marvell Technology reveals how they are harnessing AI-driven tailwinds, making a compelling case for investors who are considering which chipmaker might offer the better opportunity.
The differences between Broadcom and Marvell
Over the past eight years, Broadcom has significantly expanded and evolved. The origins of this transformation trace back to when Avago Technologies, a Singapore-based company, acquired Broadcom in 2016, assuming its name and later relocating its headquarters to the United States in 2018. This marked the beginning of a new era for Broadcom, which then ventured beyond its semiconductor origins to embrace the infrastructure software market through strategic acquisitions such as CA Technologies, cloud behemoth VMware, and Symantec’s enterprise security business.
In a recent financial performance overview, Broadcom revealed that 58% of its revenue is generated from its semiconductor business. This segment boasts a diverse portfolio, offering a range of products from wireless to optical and data storage chips. The remaining 42% of revenue flows from the infrastructure software side. A significant highlight is Broadcom’s relationship with Apple, which accounted for 20% of its fiscal 2022 and 2023 sales, a dependency expected to decrease with its acquisition of VMware, finalized last November, in fiscal 2024.
Marvell Technology distinguishes itself through a focus on data processing units (DPUs), which amalgamate CPUs, networking interfaces, and programmable data acceleration engines into a single unit. Its offerings include infrastructure, Wi-Fi, and custom chips, alongside networking and storage devices tailored for various markets including cloud, 5G, automotive, enterprise networking, and AI. Like Broadcom, Marvell has also grown through acquisitions over the past decade, albeit without branching into large software companies.
The latest earnings report from Marvell showed that a significant 70% of its revenue is derived from the data center market, with the remainder spread across various sectors. Notably, a large proportion of its fiscal 2024 revenue (24%) came from a single, unnamed client, speculated to be either Western Digital or Seagate.
Why Broadcom and Marvell are both AI plays
The stronghold of Broadcom and Marvell in the AI sector primarily stems from their production of optical and networking chips for data centers. While these chips do not directly handle AI tasks, they are indispensable for managing and transferring the massive data volumes integral to AI operations. Consequently, as data centers ramp up server capabilities with Nvidia’s GPUs to accommodate AI demands, the need for Broadcom’s and Marvell’s chips correspondingly intensifies.
Broadcom is poised to leverage this surge, projecting at least $11 billion in AI chip revenues in fiscal 2024, translating to over 21% of its anticipated full-year earnings. Marvell, not far behind, credited more than 10% of its fiscal 2024 revenue to AI chips, with expectations of this figure climbing further in fiscal 2025.
Although neither company is a direct contender in the AI market like Nvidia, which garnered 87% of its latest quarterly revenue from data centers, both Broadcom and Marvell offer a nuanced blend of AI and non-AI market solutions, presenting a diverse and robust investment front.
Which of these chipmakers is growing faster?
Broadcom’s revenue trajectory is buoyed by its recent acquisition of VMware, with analysts forecasting continued growth beyond this acquisitions’ integration. Conversely, Marvell witnessed a 7% dip in revenue in fiscal 2024, attributed to macroeconomic challenges impacting various verticals such as carrier, auto, and industrial markets. This downturn is expected to persist into fiscal 2025, with hopes of a rebound in fiscal 2026 contingent on an improved macroeconomic landscape.
Company
Estimated Revenue Growth Current Fiscal Year
Estimated Revenue Growth Next Fiscal Year
EV/Revenue Ratio (Next FY)
Broadcom
44%
16%
17
Marvell
(2%)
33%
12
When dissecting the numbers, Marvell presents a slightly more attractive valuation compared to Broadcom in terms of revenue relative to enterprise value (EV). However, factoring in projections for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), Broadcom emerges as the more compelling investment, boasting higher projected growth and a more favorable EV/EBITDA ratio.
Company
Estimated Adjusted EBITDA Growth Current Fiscal Year
Estimated Adjusted EBITDA Growth Next Fiscal Year
EV/EBITDA Ratio (Next FY)
Broadcom
34%
22%
27
Marvell
(9%)
58%
38
Furthermore, Broadcom stands out for its consistent profitability under generally accepted accounting principles (GAAP), contrasting sharply with Marvell’s record of GAAP losses over four consecutive fiscal years, attributed to its aggressive expansion strategy. While Marvell’s return to profitability is on the horizon, anticipated in fiscal 2026, it is predicated on a cessation of substantial acquisitions.
The better AI chip buy: Broadcom
Reflecting on the past 12 months, Broadcom’s stock has surged by 93%, far outpacing Marvell’s 16% gain. Investors have warmly received Broadcom’s strategic diversification into software, increasing involvement in the AI sphere, and solid GAAP profitability. These factors, combined with Marvell’s lower AI market exposure, unpredictable growth rates, and extended periods of losses, solidify Broadcom as the superior investment choice for the foreseeable future.
Should you invest $1,000 in Broadcom right now?
Prior to making an investment decision, it’s crucial to weigh all factors carefully. For those considering Broadcom, here’s something to ponder: The Motley Fool’s Stock Advisor analyst team, known for their savvy market insights, did not include Broadcom among their top 10 stock picks for investors to buy right now. Instead, they’ve identified other candidates that could potentially deliver spectacular returns in the years to come, reminiscent of Nvidia’s stellar performance since its recommendation in 2005.
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In conclusion, the semiconductor landscape is rich with investment opportunities, particularly in the burgeoning field of artificial intelligence. Between Broadcom and Marvell Technology, the former appears to be the more promising investment based on its growth trajectory, diversified portfolio, and financial stability. Yet, as the market evolves and new technologies emerge, the dynamics may shift, underscoring the importance of staying informed and adaptable in the fast-paced world of tech investments.
