Marvell Technology, Inc. (MRVL), the semiconductor chip maker, generated strong Q1 free cash flow (FCF) and FCF margins, and dramatically hiked its FY 2028 revenue forecast due to strong AI-related demand. That could raise its FCF forecast, and MRVL stock could be worth 23% more, over $251 per share, as this article will show.
MRVL closed up 3% on Thursday, May 27, to $204.83 after its May 27 release of Q1 FY 2027 results for the period to May 2. MRCL has been on a massive run-up in the last 2 months from March 30 ($87.81, +133%).
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MRVL stock - last 6 months - Barchart - May 28, 2026 That rise accelerated after the April 20 report that Google would partner with Marvell Technology to make some of its AI chips. I discussed this news and its effect on Marvell's projected free cash flow (FCF) in an April 22 Barchart article, “Marvell Technology Surges Again on AI News, With Heavy, Unusual Call Options Activity.”
I set a price target (PT) of $189.72, which was 22% higher at the time. MRVL has already surpassed this. What is going on here, and could MRVL still be worth more after this rise?
Strong Revenue Outlook and High FCF Margins
The single most important takeaway from the Q1 release was that management now forecasts its FY 2028 revenue (ending January 2028) will rise to $16.5 billion. That is $1.5 billion higher than its prior FY 2028 outlook.
For example, here is a paragraph taken from page 7 of management's presentation deck:
Marvell's Q1 deck - page 7 - May 27, 2026 Think about that. Management is forecasting that, over the next year and a half to January 2028, revenue will rise 45% over its projected FY 2027 revenue (i.e., ending Jan. 2027). Moreover, that is 10% higher (i.e., +$1.5 billion) than its prior forecast for FY 2028.
This is a sign of a very confident company, suggesting that it has strong chip orders. Moreover, it implies its profitability is locked in for the next two years.
For example, in Q1, Marvell generated $638.8 million operating cash flow (OCF), representing 26.4% of its quarterly revenue. That was 92% higher than a year ago, and +21.7% higher on a TTM (trailing 12-month) basis, according to Stock Analysis (i.e., $2.056 billion TTM OCF vs. $1.69b). Also, the TTM $2.1 billion represented 23.6% of the TTM revenue of $8.7 billion.
Moreover, Q1 capex was only $155.7, so its free cash flow (FCF) was $483.1 million, representing 20% of revenue. That was after capex rose 31% Y/Y and was even up 36% from last quarter.
This shows that the company can generate strong FCF margins, despite higher capex and revenue. For example, over the TTM period, its $1.665 billion in FCF represented 19.1% of revenue, according to Stock Analysis.
Projecting FCF and Marvell's Fair Value
Let's assume that Marvell can generate at least a 20% FCF margin going forward, even though its TTM FCF margin was only 19.1% (the Q1 figure was 20%). Here is how that works out:
$16.5 billion FY 28 revenue x 0.20 = $3.3 billion in FCF
That would be almost twice its TTM FCF of $1.665 billion (i.e., +98.2%), according to Stock Analysis's calculation. That could imply that MRVL stock is worth significantly more.
For example, as of Thursday, May 28, its market capitalization is $179.34 billion, according to Yahoo! Finance. That means that if Marvell were to pay out 100% of its TTM FCF to shareholders, the dividend yield would be just under 1.0%:
$1.665b FCF / $179.34 b = 0.00928 = 0.93% FCF yield
However, just to be conservative, let's use a higher FCF yield to value its forecasted FCF of $3.3 billion:
$3.3b FY28 FCF / 0.015 = $220 billion fair value
That is 22.9% higher than today's market cap. In other words, MRVL could be worth 23% more:
$204.83 MRVL price x 1.229 = $251.74 per share price target (PT)
Moreover, on the higher end range, it's not impossible that MRVL could generate significantly higher FCF.
For example, assuming a 25% OCF margin (the average of its Q1 and TTM OCF margins), i.e., and capex rose to $685 million (i.e., $155.7m qtrly x 4, x 10%) FCF could rise to :
$16.5b x 0.25 = $4.125b operating cash flow (OCF)
$4.125 - $685 million capex = $3.44 billion FCF
That is 3.3% higher than the $3.3 billion FCF forecasting using a 20% margin. In other words, MRVL's PT could be 3.3% higher (i.e., 22.9 x 1.033 = 23.66%):
$204.83 x 1.2366 = $253.29 PT
The bottom line is that MRVL stock looks deeply undervalued here and could be worth over 23% more, between $251 and $253 per share.
Obviously, there is no guarantee MRVL will keep rising. One way to set a lower buy-in is to sell short out-of-the-money (OTM) puts in a one-month expiry period. That way, an investor can get paid while waiting to see if MRVL falls.
Shorting OTM Puts
For example, the July 2 expiry period shows that the $190.00 strike price put option contract, 7% below Thursday's close (i.e., “out-of-the-money”), has a midpoint premium of $12.00.
That implies a short-seller of this put contract can make an immediate yield of 6.3% (i.e., $12.00 / $190.00 = 0.06316, in other words, a 6.316% yield).
MRVL puts expiring July 3 - Barchart - As of May 28 This is because the investor must first post collateral of $19,000 with their brokerage firm in order to enter an order to “Sell to Open” 1 put at $190.00. The account will then receive $1,200 from the premium (i.e., $12.00 x 100 shares per put contract).
$1,200 / $19,000 = 6.316% 1 month yield
Even if MRVL falls to $190 by July 3, the investor's breakeven point is $178.00 (i.e., $190.00 - $12.00), i.e., 13% below Thursday's closing price of $204.83. That helps the investor set a good buy-in point while also getting paid, in case MRVL stays over $190.00.
Moreover, note that if an investor can repeat this play over 3 months, the expected return (ER) is over 25% (i.e., 6.316% x 4). That is a higher ER, albeit with higher downside risk, than the 23.6% upside expected in buying MRVL stock, as shown above.
The bottom line is that shorting OTM MRVL puts is an attractive way to accumulate income, especially if it can be repeated.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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