In the wake of an economic pullback since August 2023, businesses are increasing their investments in artificial intelligence (AI), leading to a robust performance of AI semiconductor stocks. This trend has created an opportunity for long-term investors to acquire shares in key players such as semiconductor equipment leader Lam Research (NASDAQ:LRCX) and Marvell (NASDAQ:MRVL) Technology.
Marvell Technology, a chip manufacturer, has diversified its product portfolio and end-market exposure over the past six years through acquisitions of companies specializing in security system-on-chips (SoCs), customized application-specific integrated chips (ASICs), optical transport modules, and ethernet switching. The company's strategic acquisitions seem particularly insightful in the AI era, with demand for products like optical transport, ethernet switching, and ASICs expected to skyrocket. Marvell anticipates its AI-related revenue to double this year and then again in each of the subsequent two years due to surging demand.
On the other hand, Lam Research specializes in etch and deposition equipment required for manufacturing all types of semiconductors. The company believes that AI will necessitate substantial data storage and memory, as well as sophisticated leading-edge chips and new advanced packaging techniques. Lam's etch and deposition tools are used to manufacture these chips. The manufacturing-intensive process for leading-edge chips and packaging for AI could potentially require a step-up in capital intensity, which could disproportionately benefit Lam. The company projects that the transition to gate-all-around (GAA) structures in logic chips could generate an additional $1 billion in revenue for every 100,000 wafer starts per month.
However, both companies are currently experiencing year-over-year declines due to a slowdown in traditional data centers and consumer electronics. While Marvell's AI-related revenue is projected to reach a $200 million-per quarter run rate by the end of this year, accounting for only about 15% of the current run-rate, both companies' main legacy businesses are in storage technologies, a market segment currently experiencing significant weakness due to oversupply.
Despite the downturn, Lam has managed to remain profitable even during one of the worst-ever downturns for NAND flash investment. Conversely, Marvell, which lacks recurring services revenue and appears more expensive than Lam on both a price-to-sales and forward P/E basis, is banking on an upward inflection in its AI segment to enhance its overall results.
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