Wall Street Is Bullish on 1 of These Chip Stocks and Bearish on the Other
Key Points
Wall Street strongly favors Marvell over Intel as a leading AI infrastructure play thanks to its growing custom silicon and optical networking businesses.
Marvell benefits from AI spending by hyperscalers and has multiple revenue streams, whereas Intel's tech has yet to convince many analysts.
But it's also true that Marvell faces high expectations and customer concentration, while Intel has supporters who believe in its chipmaking efforts.
Both Marvell Technology and Intel make chips that matter to the artificial intelligence build-out, and both have plenty of fans on the internet.
What's interesting to me is that the biggest names on Wall Street, the research desks at firms like Goldman Sachs, Bank of America (NYSE: BAC), and Morgan Stanley (NYSE: MS), have landed on opposite sides.
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One of these stocks has the big banks leaning in. The other has them holding back, politely but clearly. So who's right?
Image source: Getty Images.
Why the big banks are bullish on Marvell Technology
Marvell Technology (NASDAQ: MRVL) has quietly become one of Wall Street's favorite ways to play AI without owning the obvious names. Its business is twofold, and both halves are working. The first is custom silicon. When a giant cloud company decides it wants to design its own AI chip rather than buy one off the shelf, it needs a partner to actually turn that design into working hardware, and Marvell has become that partner for several of them.
The second is optical interconnect, the unglamorous "plumbing" that shuttles data between the thousands of chips packed into an AI data center. Marvell now expects to supply that connective tissue to all five of the largest U.S. cloud operators.
Goldman Sachs recently raised its price target on the stock, citing improving visibility into the custom-silicon pipeline, and Bank of America has been constructive as well. The reason the banks like the setup, as I read it, is that these two businesses reinforce each other. A customer that uses Marvell's building blocks inside its custom chip tends to buy Marvell's interconnect products too, which makes the relationship stickier and harder for a rival to pry loose.
Marvell's addition to the S&P 500 in June only underlined how far it has traveled from a sleepy niche supplier.
Why Wall Street is more skeptical of Intel
Intel (NASDAQ: INTC), by contrast, is a turnaround story that the big banks are watching with arms folded. The company is trying to do two hard things at once: fix its own product lineup and reinvent itself as a foundry, meaning a contract manufacturer that builds chips for other companies the way Taiwan's giants do.
There's been real operational progress here worth acknowledging -- Intel's next-generation 18A-P manufacturing process entered risk production this summer on the timeline it promised, and the company says it has resolved the yield problems that dogged the earlier version.
The hesitation from Wall Street is about economics, not engineering. Morgan Stanley has expressed doubt that the foundry can generate attractive returns and flagged a thin server-chip roadmap. Bank of America has warned more broadly that AI chip valuations have gotten stretched, and the market's worry is that Intel's advanced process may not turn a real profit for another couple of years.
In other words, the technology can work, and the business can still struggle to pay off.
The other side of each argument
Balance matters here because neither call is unanimous. HSBC (NYSE: HSBC) has taken the contrarian view on Intel, arguing that its 18A process, advanced packaging, and support from governments eager for domestic chipmaking put it in the right place at the right time. And Marvell isn't risk-free just because the banks like it, expectations are now high, and a big chunk of its growth rests on a handful of enormous customers, any of whom could pull work in-house.
If you want to lean the way the big banks are leaning, Marvell Technology is the name with the wind at its back, thanks to a business that sells the picks and shovels of AI infrastructure from two angles at once. Intel is the show-me stock, where even bullish desks are waiting for the foundry to prove it can make money, not just make chips. I think the smarter move is to let the business results, not the price target headlines, tell you which thesis is winning.
Bank of America is an advertising partner of Motley Fool Money. HSBC Holdings is an advertising partner of Motley Fool Money. Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel and Marvell Technology. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.