For value investors who don’t believe the AI bubble is bursting, starting with the semiconductor industry, some of the harder-hit names within the space might be worth a closer look. Undoubtedly, there’s more to dip-buying than simply going for the biggest (or close to it) dips in any given sell-off.
Either way, I do view shares of Marvell (NASDAQ:MRVL | MRVL Price Prediction) as enticing, especially since they’ve already shed just over 40% from peak to trough while the broader semiconductor industry fell a hair north of 20%, with the iShares Semiconductor ETF (NASDAQ:SOXX) just making it into a bear market.
Not to discount how painful bear markets can be, but whenever you have an industry-wide lift-off and doubling in under a year’s time, perhaps a brutal bear market is the kind of “correction” that you’d want to see. Whether it takes an AI bubble off the table entirely remains the big question, but either way, the relief rally enjoyed in recent sessions could go either way.
As a slate of big Magnificent Seven quarterly earnings results comes up, they could set the tone for the rest of the semi space, especially as hints of future spending get dropped. In my view, one thing that keeps getting CapEx from the big AI hyperscalers (and beyond) is custom silicon.
The custom silicon tailwind is still going strong
Firms are taking command when it comes to their silicon futures, and I just don’t see that changing, especially when you consider the kinds of gross margins that the GPU makers, most notably Nvidia (NASDAQ:NVDA), have been generating in recent years.
That’s where the opportunity seems to lie in these early days of the AI race. And if Nvidia’s CEO Jensen Huang is right in that semiconductors could become the largest industry in the world, I do think that custom silicon ought to remain a top priority of tech firms that hope to win the AI race.
Undoubtedly, it’s expensive enough to stay competitive in the AI race, especially given the costs of hardware. For the firms looking to take control of their own silicon, though, I do see the economics getting better over time. Whether it’s hyperscaler custom silicon, AI labs getting into custom silicon, or software design firms getting in the game, it’s clear that the custom silicon tailwind might be one of the fiercest in all of the industry.
For investors who view the latest semi drop as another window to buy, I think Marvell stands out as a name that could be in for the biggest recovery bounce. Indeed, high beta works both ways, with Marvell sporting a 2.20 beta and a fierce surge of 6.7% on Tuesday’s recovery session.
Of course, cyclicality applies across the broad semi scene and, in that regard, Marvell might not be deserving of a free pass if the semis move south. Whether the semis are in for a steeper correction from here (a 50% dip in the broader industry certainly isn’t off the table) or not, companies have the incentive to make the investments so that they don’t have to pay the so-called Nvidia tax forever.
The fast-growing CXL market is a driver
With UBS recently shining light on the company’s CXL (Compute Express Link) business, citing a $4.5 billion total addressable market (TAM) by year-end, reaching as high as $10 billion by 2030, the firm views Marvell as a standout name worthy of a big price target upgrade. With a $340 target, which now implies a 64% gain, it certainly seems like Marvell is one of the more underestimated plays as the XPU continues moving at full speed.
Could CXL be the next big catalyst? Given the memory chip bottleneck and focus on greater efficiencies across AI, I do think UBS is spot on to raise the bar on Marvell shares, given the tailwind, which I think might still be underrated by investors, especially amid the latest industry-wide panic.
While Marvell won’t be a name for everyone, I do see it as having a unique and powerful slate of catalysts, which might just take the stock right back to new highs. With a capital-light model and all the essential tools needed for custom AI silicon, especially as inference takes off, Marvell remains a name that’s worth hanging in for the ride, at least according to most analysts.
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