Marvell Technology and the S&P 500 Inclusion Miss: Is This a Buying Opportunity?

The recent exclusion of Marvell Technology (NASDAQ: MRVL) from the S&P 500 has sparked debate among investors about whether the stock's 25% decline in 2025 represents a mispricing opportunity. While the company has yet to secure index inclusion, its valuation metrics and strategic positioning in the AI semiconductor sector suggest a compelling case for long-term investors willing to navigate near-term volatility.

Valuation Recalibration: A Tale of Contrasts

Marvell's valuation appears to straddle two narratives. On one hand, its trailing P/E of 34.83 and forward P/E of 25.64 position it as a relative bargain compared to the semiconductor industry's average P/E of 38x, suggesting the market is discounting its earnings at a lower rate than peers, potentially reflecting skepticism about near-term growth. On the other hand, its enterprise value-to-EBITDA ratio of 105.2x starkly outpaces the industry median, raising questions about whether its premium is justified.

The disconnect may stem from Marvell's negative 5-year EBITDA growth rate of -8.10%, which complicates PEG ratio calculations-a metric that typically balances growth expectations with valuation. However, the company's recent financial performance, including Q3 FY26 adjusted earnings of $0.76 per share and $2.07 billion in revenue, hints at a turnaround. With full-year 2026 revenue projected to reach $8.2 billion-a 40% year-over-year increase-investors may be underestimating the catalysts driving Marvell's AI-driven transformation.

Strategic AI Positioning: Building for the Future

Marvell's aggressive foray into AI infrastructure has positioned it as a key player in the semiconductor industry's next frontier. The company's full-stack interconnect portfolio, including co-packaged optics (CPO) and 800G ZR/ZR+ coherent pluggable optical modules, is tailored for hyperscalers seeking to optimize data center efficiency. These innovations align with the surging demand for AI scale-up and scale-out architectures, where high-bandwidth, low-latency connectivity is critical.

Strategic partnerships further bolster Marvell's AI ambitions. Its collaboration with Microsoft to expand cloud-based security services using LiquidSecurity hardware security modules (HSMs) spans Europe, Asia, and North America, while its alliance with NVIDIA leverages NVLink Fusion technology to deliver custom XPU silicon solutions. Notably, the acquisition of Celestial AI for $3.25 billion underscores Marvell's commitment to vertical integration, with the startup's AI software expected to contribute $500 million in revenue by 2028 and scale to $1 billion by 2029 according to analysis.

Growth Projections and Index Inclusion: A Dual Catalyst

Marvell's revenue trajectory for 2026–2028 is nothing short of explosive. Data center revenue, which accounted for 73% of total revenue in Q3 FY26, is projected to grow by 25% in 2027 and 40% in 2028. The custom ASIC segment, critical for AI workloads, is forecasted to expand 20% in 2027, while the electro-optical segment is expected to surge 35% according to analysis. These figures, coupled with Celestial AI's projected revenue contribution, suggest Marvell is on track to achieve $18 billion in revenue by 2028-a 118% increase from 2026.

The S&P 500 inclusion remains a wildcard. While Marvell has met the final financial viability criteria, its exclusion in 2025 has depressed the stock price. Historically, index additions have led to inflows of passive and active capital, often boosting liquidity and share price. If added, the stock could see a technical rebound, particularly if institutional investors rebalance portfolios to reflect the index's composition.

Risks and Considerations

Investors must weigh these opportunities against risks. The semiconductor sector is highly competitive, with rivals like Broadcom posing persistent threats. Additionally, Marvell's EV/EBITDA premium may not be sustainable if growth slows or margins compress. Execution risks around the Celestial AI integration and the success of AI partnerships also warrant scrutiny.

Conclusion: A Calculated Bet on AI's Infrastructure

Marvell's valuation appears undervalued relative to its growth potential, particularly in the AI semiconductor space. While the S&P 500 inclusion miss has created a near-term headwind, the company's strategic investments in AI infrastructure, coupled with robust revenue projections, suggest the market may be underappreciating its long-term prospects. For investors with a 3–5 year horizon and a tolerance for volatility, Marvell presents a compelling case: a high-growth semiconductor stock trading at a discount to its intrinsic value, with AI-driven tailwinds poised to accelerate.