Broadcom vs. Marvell: AI Chip Contenders Racing in Nvidia's Shadow?

When thinking about AI chip contenders, Broadcom (NASDAQ: AVGO) and Marvell Technology (NASDAQ: MRVL) might not be the first names that come to mind, especially when compared to the star-studded likes of Nvidia (NASDAQ: NVDA). However, these diversified chipmakers are riding the AI wave impressively. Let's delve into their respective AI advantages to determine which stock holds the stronger chip-play promise for traders.

Broadcom’s journey: From Singapore to software powerhouse

Broadcom’s evolution over the past eight years is nothing short of transformative. Avago Technologies from Singapore acquired the real Broadcom in 2016, adopting its name and relocating its headquarters to the U.S. by 2018. The reimagined Broadcom then made significant inroads into the software sphere by acquiring heavyweights like CA Technologies, VMware, and the enterprise security segment of Symantec.

The latest earnings report shows Broadcom earning 58% of its revenue from its semiconductor segment, which encompasses a broad range of chips, and 42% from its burgeoning infrastructure software division. Notably, Apple accounted for 20% of Broadcom's sales in fiscal 2022 and 2023, a figure expected to decrease with the VMware acquisition likely to contribute significantly from fiscal 2024 onwards.

Marvell’s strategic focus on data processing and AI

On the other hand, Marvell is renowned for its sophisticated Data Processing Units (DPUs), which combine CPUs, networking interfaces, and data acceleration engines. Its portfolio also includes infrastructure, Wi-Fi, and customized chips aimed at diverse sectors such as cloud, 5G, automotive, and AI. Unlike Broadcom, Marvell hasn't ventured deeply into software acquisitions but has steadily expanded within its niche markets.

Marvell derives 70% of its revenue from the data center segment, with the remainder split among various other sectors. A single major customer, speculated to be either Western Digital or Seagate, represented a substantial 24% of its revenue in fiscal 2024, which endedWestern Digital or Seagate in February.

AI as the common denominator

Broadcom and Marvell are experiencing robust demand for their optical and networking chips dedicated to data centers. Although these chips don’t directly process AI tasks, they are vital for managing the massive data flows necessitated by AI operations. As data centers integrate more of Nvidia’s GPUs, the demand for complementary chips from Broadcom and Marvell escalates.

Broadcom projects a substantial $11 billion in AI chip revenue for fiscal 2024, equating to over 21% of its anticipated annual earnings. Marvell already generates more than 10% of its revenue from AI-related chips and expects this proportion to climb in fiscal 2025.

Neither company is as heavily reliant on AI as Nvidia, which fetched 87% of its revenue from the data center market in its latest quarter. However, both Broadcom and Marvell enjoy a balanced mix of AI and non-AI ventures, offering some stability.

Analyzing growth trajectories

Broadcom's revenue will see a boost thanks to the recent VMware acquisition, with continued expansion anticipated thereafter. Conversely, Marvell's fiscal 2024 saw a 7% revenue decline due to macroeconomic headwinds affecting its various markets. Projections indicate this sluggish performance might persist into fiscal 2025, pending a more favorable macro environment by fiscal 2026.

Marvell appears more affordable regarding enterprise value (EV) relative to revenue. However, when considering projected gains in adjusted EBITDA, Broadcom seems to offer better value.

Furthermore, Broadcom stands out for its consistent profitability on a GAAP basis, an area where Marvell has struggled, posting losses over the last four fiscal years with no projected return to profitability until fiscal 2026.

The clear choice: Broadcom

Over the past year, Broadcom's stock has surged by 93%, vastly outpacing Marvell's 16% rise. Investors seem more enthused by Broadcom's aggressive expansion into software, its growing AI market footprint, and its reliable profitability. Those elements will likely keep it ahead of Marvell, which faces less AI exposure, uneven growth rates, and significant losses.