Marvell Merits a Narrow Moat, and We Expect Impressive Growth and Profitability

We upgrade Marvell Technology’s (MRVL) economic moat rating to Narrow, from None, as we have greater confidence in the firm’s ability to defend its competitive position over the next 10 years. We also raise our capital allocation rating for Marvell to Exemplary, from Standard, as we believe the balance sheet is sound and the firm’s investments have helped it carve a moat and structurally improve its profits. We maintain our $57 fair value estimate as haircuts to our long-term forecast offset the moat upgrade’s effect on our valuation. We see shares as undervalued, with short-term weakness creating a buying opportunity for long-term investors.

We view Marvell Technology as a strong competitor in networking chips, resulting from a multiyear business pivot using acquisitions, divestitures, and organic development to focus on the cloud, 5G, and automotive markets. In our view, the new-look Marvell offers strong growth potential, impressive profitability, and a healthy competitive position. Between switching, network processing, and optical chips, Marvell has one of the broadest networking silicon portfolios in the world, and we believe it is primed to grow faster than its underlying markets as future networking setups utilize greater content and we anticipate Marvell will continue to win sockets over competitors.

We expect Marvell to continue competing at the cutting edge of networking silicon with chip heavyweights like Broadcom, Nvidia, and Intel. Marvell’s billions in cumulative R&D investment, both organically and via acquisitions, has generated design prowess, and we see its strong customer relationships with cloud providers and networking equipment vendors alike as sticky. Marvell wins designs using its broad portfolio of intellectual property to create tailored or customized solutions, and earns impressive profits while doing so.