AI optics cannot hide ASIC hidden dangers! HSBC: Marvell Technology, Inc. (MRVL.US) lacks short-term catalysts, giving it a "hold" rating.

HSBC Global Investment Research has covered Marvell Technology, Inc. (MRVL.US) for the first time, giving it a "hold" rating with a target price of $85. The department pointed out that the negative factors from the Application-Specific Integrated Circuit (ASIC) business will be offset by the growth momentum of the AI optical business. The analyst team led by Frank Lee stated that with ASIC and optical communication as the two main businesses, Marvell Technology, Inc. is gradually becoming an important player in the AI field. The analyst at the bank pointed out that capital expenditure from hyperscale vendors is a good proxy indicator for determining the demand for ASIC. "Given the significant increase in hyperscale vendor Capex guidance, we expect the share of ASIC in it to increase from 2% in 2023 to 13% in 2027. Although Marvell Technology, Inc. is confident in its ASIC strategy, we remain cautious. We believe that the main competitor, Broadcom Inc. (AVGO.US), will benefit more as their ASIC product roadmap has higher visibility." Since the beginning of the year, Marvell Technology, Inc. stock has fallen by about 29%, while Broadcom Inc. stock has risen by about 47%. "We believe that Amazon.com, Inc. (AMZN.US) remains the largest ASIC customer for Marvell Technology, Inc., but Marvell Technology, Inc. has limited share in Amazon.com, Inc.'s current generation Trainium 2/2.5 chips as these chips are mainly designed internally by Amazon.com, Inc. For the latest generation Trainium-3, we expect Marvell Technology, Inc. to lose more share as AI chips have taken up most of the orders." The bank analyst added. Marvell Technology, Inc.'s next important ASIC project comes from Microsoft Corporation (MSFT.US), but the team expects this project to be delayed until at least 2027, as they believe Marvell Technology, Inc. will not be able to obtain enough CoWoS capacity in 2026. HSBC estimates that Marvell Technology, Inc.'s ASIC revenue for the 2027 fiscal year will be $2 billion (a 12% increase year-over-year), which is 10% lower than the market consensus expectation of $2.3 billion (a 26% increase year-over-year). "Although ASIC is a core variable for the stock price, Marvell Technology, Inc.'s market-leading position in the AI optical fielddriven by DSP chipsis still the main source of its revenue. We expect increased competition with the introduction of Broadcom Inc.'s 800G and 1.6T DSP solutions." Despite increasing competition, HSBC forecasts Marvell Technology, Inc.'s optical revenue for the 2027 fiscal year to be $2.5 billion (a 38% increase year-over-year), which is 14% higher than the market consensus expectation of $2.2 billion (a 20% increase year-over-year), mainly based on the expansion of the 800G total addressable market (TAM) and the stronger DSP growth brought by the gradual ramp-up of 1.6T. In summary, HSBC's estimate for Marvell Technology, Inc.'s 2027 fiscal year total data center revenue is $7.1 billion (an 18% increase year-over-year), which is in line with market expectations and the company management's reaffirmed 18% year-over-year growth guidance, as well as HSBC's prediction of hyperscale vendor Capex growth rate.