Did you miss Broadcom? Buy this artificial intelligence (AI) semiconductor stock before it skyrockets

Actions of Broadcom (AVGO 0.87%) has posted impressive gains of 82% over the past year, thanks to the company’s strong position in the custom artificial intelligence (AI) chip market, which has led to robust growth in the company’s semiconductor business. It also helped that Broadcom was named the second-leading AI chip company after Nvidia of JPMorgan analyst Harlan Sur.

This designation is not surprising as the company is the dominant player in the application specific integrated circuit (ASIC) market with an estimated 55% to 60% share. More importantly, the company’s dominance in this area is paying off.

Broadcom’s strong rally over the past year is why it now trades at a hefty 17 times sales and 70 times trailing earnings. That expensive valuation may discourage investors from buying more Broadcom stock and prompt them to look for alternatives.

Another way to capitalize on the growing demand for custom AI chips is Marvell technology (MRVL 1.21%). Let’s look at the reasons.

AI gives Marvell Technology a nice lift

Marvell Technology released its fiscal second quarter 2025 results (for the three months ended August 3, 2024) on August 29. The company’s revenue fell 5% year-over-year to $1.27 billion, while non-GAAP earnings fell 9% to $0.30 per share. However, Marvell shares rose more than 9% following its results. This may seem surprising at first, given the contraction in its top and bottom lines, as well as the fact that its numbers were roughly in line with consensus estimates. Wall Street had expected earnings of $0.30 per share on revenue of $1.25 billion.

However, a closer look at the company’s work with data centers helps explain why investors bought into its results. Marvell sold $881 million worth of data center chips last quarter, up 92 percent from the same period last year. This segment produced 69% of the company’s top line in the fiscal second quarter, and the upside is that Marvell’s data center growth could accelerate as it ramps up production of its AI chips.

In the words of CEO Matthew Murphy on the latest earnings conference call:

Our custom AI silicon programs are progressing very well, with the first two chips to begin volume production. The development of new custom programs that we have already won, including the projects with the new Tier 1 AI client that we announced earlier this year, are also progressing well towards key milestones.

Murphy added that he expects “data center revenue growth to accelerate in the high-teens on a sequential, percentage basis” in the fiscal third quarter, which would be an improvement from 8% sequential growth recorded by this segment in the last quarter. More importantly, Marvell management believes the company is on track to exceed the $1.5 billion in fiscal 2025 revenue it forecast earlier this year.

The company anticipates that ramping up its custom AI chip production, a strong order book, and the fact that it has secured enough supply to meet end-market demand should enable it to sustain healthy growth in its AI. income in the current fiscal year and the next. More importantly, the custom AI chip market presents a healthy long-term growth opportunity for Marvell.

JPMorgan analysts estimate that the custom AI chip market presents a $150 billion cumulative revenue opportunity over the next four to five years. While the investment bank points out that Broadcom is in an excellent position to capitalize on this opportunity, investors should note that Marvell is the second largest player in the ASIC market with an estimated 15% share.

This share translates into impressive growth in the company’s data center business, as we saw earlier, and guidance indicates that the trend is here to stay. Marvell estimated revenue of $1.45 billion and $0.40 per share in adjusted earnings for the current quarter. This will mark a return to top-line growth for the company, as it posted revenue of $1.42 billion in the same period last year. The company’s earnings decline would come to a screeching halt as it reported $0.41 per share in earnings during the same quarter last year.

In addition, Marvell expects all of its end markets to return to sequential growth in the current quarter. Again, this is not surprising as the prevailing weakness in its other business segments was gradually diminishing.

Strong earnings growth and a reasonable valuation make Marvell stock worth buying

Marvell’s earnings in fiscal 2025 are expected to be down slightly from $1.51 per share in the previous fiscal year. But as the chart below indicates, its revenue growth is slated to kick into high gear starting in fiscal 2026.

MRVL EPS estimates for current fiscal year data by YCharts

The market could reward this impressive acceleration in Marvell’s earnings with more upside. That’s why investors looking for an alternative to Broadcom should consider buying Marvell outright. It has a relatively cheaper price-to-sales ratio of 12.5 and has a forward earnings multiple of 30, roughly in line with Nasdaq-100 forward earnings multiple of the index (using the index as a proxy for technology stocks).

Assuming Marvell manages to generate earnings of $3.41 per share after a few years and trades at 30 times earnings at that point, its stock price could rise to $102. That would be a 34% increase from current levels, though the possibility of higher gains can’t be ruled out given the massive AI chip opportunity this semiconductor company is sitting on.