Anticipation: The Value of This Artificial Intelligence (AI) Chip Company's Shares is Expected to soar following December 3rd

Anticipation: The Value of This Artificial Intelligence (AI) Chip Company's Shares is Expected to soar following December 3rd

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The competitive landscape of artificial intelligence (AI) chips has predominantly been ruled by Nvidia, which justifies its impressive earnings for Q3 of fiscal 2025, marked by a 94% revenue surge to $35.1 billion and a doubling of adjusted earnings to $0.81 per share. Despite this stellar performance, the market response has been subdued, with Nvidia's stock dipping since the release of its latest report.

The reasons behind this lukewarm reaction may include Nvidia's expensive valuation and concerns about its potential growth deceleration. Moreover, the rapid production ramp-up of Nvidia's new-gen AI chips might create margin pressure, primarily contributing to the stock's instability.

In contrast, there's an inexpensive chip stock that's been delivering consistent gains over the past three months. This company is slated to unveil its financial performance on Dec. 3, and its solid show could propel its stock upwards.

Let's delve deeper into this contender.

Custom AI chips drive this chipmaker's growth

While Nvidia dominates the graphics processing unit (GPU) sector in AI data centers, there's another type of chip gaining prominence: Application-specific integrated circuits (ASICs). ASICs are tailor-made chips used for specific tasks, offering enhanced efficiency due to their ability to consume less power compared to GPUs.

According to market research firm Lucintel, the AI-focused ASIC market is projected to expand at a 32% annual rate until 2030. One way investors can capitalize on this trend is by backing Marvell Technology (MRVL 0.69%), a custom chip designer that's rebounded thanks to AI.

Marvell will report its Q3 FY2025 results following market closure on Dec. 3. The company's stock has skyrocketed 33% following its last earnings announcement on Aug. 29. This surge originates from the surging demand for Marvell's custom chips, which offset losses in other sectors.

In Q2 of FY2025, Marvell's overall revenue dipped 5% YoY to $1.27 billion. Its non-GAAP earnings declined to $0.30 per share, compared to $0.33 per share in the same period the previous year. However, a staggering 92% year-over-year increase in Marvell's data center revenue to $881 million overshadowed the declines in its revenue and earnings.

Marvell expects $1.45 billion in Q3 revenue, which, if achieved, would represent a slight improvement over the same period last year. Consensus estimates predict Marvell will wrap up the current fiscal year with $5.54 billion in revenue, nearly matching the previous year's total. Additionally, its earnings are projected to drop to $1.46 per share from $1.51 per share in the previous fiscal year.

However, Marvell's long-term growth prospects appear promising.

Marvell's future outlook is strong

Given the healthy market for custom AI chips, expert predictions suggest Marvell will accelerate its growth. The company expects to conclude FY2025 with $1.5 billion in AI revenue, a figure slated to increase to $2.5 billion in FY2026. Moreover, Marvell forecasts a substantial expansion in its addressable market due to AI. The company expects its data center total addressable market (TAM) to reach $75 billion by 2028, up from $21 billion in 2023.

Marvell highlights $43 billion of this TAM as attributable to the expanding demand for custom compute chips, while another $26 billion will stem from data center switching and interconnect markets. Notably, Marvell is making progress in both these sectors. The company anticipates that a third of its AI revenue in the current fiscal year will originate from custom compute chips, with the remaining share coming from the AI-centric data center connectivity sphere.

On the previous earnings call, CEO Matt Murphy highlighted the company's advancements in AI custom silicon: "Our AI custom silicon programs are advancing well with our first two chips now in volume production. Development for new custom programs we have already won, including projects with a new Tier 1 AI customer we announced earlier this year, are progressing well to key milestones."

In light of these indications, there's a plausible chance that Marvell will exceed expectations and provide an optimistic outlook. This could potentially make buying the stock before Dec. 3 an astute move, given that it currently trades at 37 times forward earnings, which isn't excessively expensive considering its projected rapid profit growth in the upcoming years.

Investors interested in capitalizing on the growing AI-focused ASIC market might consider investing in Marvell Technology. Despite a decline in its Q2 revenue and earnings, Marvell's strong performance in the custom chip sector has led to a significant surge in its stock price.

Investing in Marvell Technology could prove profitable, as the company projects a significant increase in its AI revenue and anticipates a substantial expansion in its data center total addressable market due to AI, reaching $75 billion by 2028. The company's advancements in AI custom silicon, including two chips now in volume production, further strengthen its position in the market.

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