Marvell Technology (MRVL) has been one of the best trades in the AI boom. The stock rose more than 220% over the past year as data centers continued to buy its custom chips and optical components.Lately, the stock has cooled, slipping to around $230 after pulling back from its highs.Now, one investor says it’s time to slow down. He is not predicting a crash. His point is simpler: Even a great company can be a bad buy if you pay too much for it.For anyone still holding Marvell, that raises one question. Has the stock already had its big run?Why one 5-star investor moved Marvell to the sidelinesThe call comes from an investor who goes by the pseudonym Bay Area Ideas, or BAI. He is a 4.73-star member of the TipRanks community with an average return rating of 18.40%. According to TipRanks, he cut Marvell to a hold while keeping Broadcom (AVGO) at a buy.More AI Stocks:Broadcom insider unloads an eye-popping number of shares5-star analyst sets jaw-dropping AMD stock price targetTop analyst strongly resets AMD stock price targetMarvell still has a strong business, but BAI said the stock now trades above 80 times its past-year earnings. That’s up from about 30 times back in April, when he last checked it.A price-to-earnings ratio tells you how much investors pay for each dollar of profit. A higher number means bigger expectations are already built into the price.
Marvell’s custom AI chips and optical parts have fueled a huge run in the stock, but one top-rated investor now says the price has climbed too far.Comezora / Getty Images
What still works in the Marvell growth storyBAI still likes Marvell.Marvell topped both sales and profit forecasts last quarter, and its management sees a $94 billion data center market opening up within two years.The company also projected second-quarter sales of $2.7 billion, a 35% increase from a year earlier.The demand is real. Nvidia CEO Jensen Huang recently called Marvell a possible “next trillion-dollar” chip company. That comment alone added tens of billions in market value in a single session.The catch behind Marvell’s soaring valuationThe problem is what happens when a great business meets a very high price.BAI flagged one weak spot in the numbers. Marvell’s gross margin, the slice of sales left after production costs, slipped 90 basis points from a year earlier. Related: Bank of America resets Marvell stock price targetBAI called the flag a surprise and said investors should watch for more of it.Seeing as Marvell is trading at more than 80 times past-year profits, or about 60 times analysts’ next-year estimates, the stock leaves little room for error. Any missed quarter or lost chip design could trigger a sharp drop, since so much good news is already priced in.Why the investor prefers Broadcom stock right nowBroadcom is the calmer bet of the two.Its AI revenue growth sped up from 106% to 143% in the latest quarter. Broadcom’s management projected third-quarter sales of $29.4 billion, up 84% from a year ago. The company also reported record revenue of $22.19 billion. However, the stock has still lagged. Broadcom is up about 37% over the past year, but it fell after its June earnings. This happened even as JPMorgan raised its target and pointed to more than $30 billion in AI bookings.Shares have started to recover, trading near $373 after rising about 6% on an expanded custom-chip deal with Apple.How Broadcom and Marvell stack up for buyers todayHere is the tradeoff in plain terms.What separates the two AI chip stocks:Broadcom: Up about 37% in a year; reflects faster AI growth, a software cushion from VMware, and a stock that has lagged its own results.Marvell: Up more than 220% in a year; reflects rapid revenue growth, but a valuation above 80 times past-year earnings, and a small margin dip to watch.Wall Street: Both hold a strong buy consensus, but the average targets tell different stories, TipRanks noted.At the time of the note, Broadcom’s average 12-month target of $516.91 implied roughly 43% upside, while Marvell’s $270.04 target suggested a more modest 10%. Marvell’s rapid run has since left its price close to Wall Street’s average target.What Marvell’s rating change means for your next moveOne analyst’s hold rating is not a sell signal, and it does not mean the AI trade is over.It is a reminder that price discipline still matters, even in a hot sector. A wait-and-see approach is useful here.If you already own Marvell, the case for downsizing rests on valuation, not on the business breaking down. And if you are looking to start a position, the safer entry may be the name that has not run as far. That is the whole point behind BAI’s split verdict, and why he sums it up bluntly: “Marvell is no longer a marvelous buy.”Related: Broadcom extends Apple chip deal through 2031