MRVL - Marvell Technology: Eyes On Earnings Following A Soft Outlook In March

2024-05-06 00:24:36 ET

Summary

• The I.T. sector trades at a premium valuation compared to the S&P 500, partly due to the boom in AI.
• I see shares of Marvell Technology as fairly valued, but the company has the potential for a higher valuation if high EPS growth materializes.
• MRVL reported soft Q1 guidance for FY 2025 two months ago, causing concern among investors, but the firm also announced a $3 billion share repurchase program.
• But with a mixed momentum view, I see the consolidation as ongoing.

The Information Technology sector continues to trade with a premium valuation. According to FactSet, the IT space sports a 26.5x forward operating earnings multiple – better than six turns more expensive than the S&P 500. The P/E is also above the sector’s 5- and 10-year averages. Of course, the premium is at least partly warranted, given the ongoing boom in AI. The semiconductor industry now accounts for about 10% of the S&P 500, larger than some sectors. But not all AI plays are created equal....

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