MRVL is overvalued; fair value $181 vs current $211 implies ~14% downside in 12-18 months.

Marvell and Qualcomm are preparing to capitalize on the growing demand for AI data centers . Marvell assists companies with integrated circuits designed for specific applications, and in connecting these components.

Based on all of the above, which of the two stocks is better to buy now: Qualcomm or Marvell? Looking at the revenue profile, Qualcomm is a much larger company compared to Marvel , with revenues more than four times those of Marvel, at $44 billion versus $ 9.45 billion for Marvel.

But Marvell is already benefiting from the AI boom , with its revenues up by more than 40%, and management expecting even faster growth over the next two fiscal years.

We can observe the cyclical nature of the semiconductor industry when we look at the operating profit margins of both Qualcomm and Marvell.

As I mentioned, Marvell has already begun to capture the growing demand for AI data center spending , and its operating profit margin is on the rise. At 16.8%, it is not too far off Qualcomm, and it is reasonable to assume that Marvell's operating profit margin will exceed Qualcomm's margin within the next twelve to twenty-four months.

But I think this increase will be temporary, and when Qualcomm starts generating revenue from data centers, and if memory prices reach equilibrium starting in 2028, Qualcomm's operating profit margins are likely to surpass Marvell's in the long run.

Similarly, when we measure the return on invested capital, we find that Qualcomm has the best figure, but Marvell improves significantly more . At 23%, Qualcomm's return on invested capital exceeds its weighted average cost of capital, which is a good baseline, while Marvell's 12.61% barely matches its average cost of capital.

Again, it is reasonable to assume that Marvel's return on invested capital will surpass Qualcomm's in the near term, but over longer periods of time, I expect Qualcomm to achieve a better return compared to Marvel.

Therefore, looking at the rating tells an interesting story . As I mentioned earlier in the video, we noticed that Marvell is already benefiting from the AI boom, while Qualcomm is facing headwinds as a result of this boom and its effects on the memory market, which impacts the smartphone industry.

Marvell’s market value is almost double that of Qualcomm when measured on a forward price-to-earnings basis, reaching 31.7, which is almost double Qualcomm’s valuation of 16.7.

Now, I agree with the market that Marvell should be traded at a higher valuation compared to Qualcomm , but I think the level of that premium, which is almost double Qualcomm's value, seems excessive.

Meanwhile , when I calculated Marvell’s valuation, I found that its fair value is $181, and the current market price of $211 means there is a potential decline for Marvell stock of about 14% over the next 12 to 18 months.

Therefore, I get a similar valuation result whether I look at future earnings multiples or discounted cash flow models ; Marvell's stock valuation appears to be overvalued, while Qualcomm's valuation appears to be undervalued.