Citigroup: AI revenue expected to boost Q3 results, maintains "buy" rating on Marvell Technology (MRVL.US)

Citi maintained a "buy" rating on Marvell Technology (MRVL.US) with a target price of $91, highlighting confidence in the company's AI sales target upgrade.

Analysts led by Atif Malik noted that they expect Marvell Technology's market expectations to rise in the second half of 2024 due to strong growth in custom application-specific integrated circuits (ASICs) and continued strong demand for 800G optical modules. Fundamentally, they still believe only two companies have the technical expertise needed to provide the design of cutting-edge custom ASIC chips, with Marvell Technology being one of them.

The analysts said management is confident in short- and long-term custom ASIC opportunities for three hyperscale customers, A, B, and C, which will drive total AI sales targets to $1.5 billion/$2.5 billion in fiscal years 25/26.

The analysts believe Marvell Technology could see strong growth in its Trainium2 chips this year and noted that Amazon (AMZN.US) AWS CEO Matt Garman was excited about the launch of the new training chip and the expansion of AWS AI/ML workloads/capacity at recent meetings.

Malik and his team believe Google (GOOGL.US) could see a small increase in Arm CPU capacity this year, but a significant increase next year if the hyperscale company decides to expand the project to general-purpose processors.

The analysts said Microsoft (MSFT.US) remains the biggest opportunity in 2026 and believe Marvell Technology is also capable of benefiting from new custom ASIC projects from Open AI and Oracle (ORCL.US) in the future.

Marvell Technology expects its non-AI business in enterprise networking and carrier infrastructure to bottom out after shipments fell short of terminal demand in the first half of 2024, but analysts noted that the time to see non-AI sales reach a normal sales level of about $2 billion is still to be seen.

Analysts expect Marvell Technology's revenue to show stronger year-over-year growth in the fourth quarter due to strong demand for custom ASICs and 800G optical modules.

Overall, Citi analysts said their "buy" rating for Marvell Technology is due to continued growth in AI optical components, tiered sales of custom ASIC AI projects, and bottoming out in non-cloud markets such as enterprise networking and carrier infrastructure.