The signal for Marvell Technology out entrance of a company workplace by Valeriya Zankovych via Shutterstock
Marvell Technology (MRVL), the customized system-on-a-chip designer, had lower-than-expected Q2 FCF and FCF margins, as in Q1. Nevertheless, analysts expect income to surge over 51% next yr. As a outcome, MRVL stock could have over 34% upside utilizing conservative FCF margin and FCF yield evaluation.
MRVL closed down over 2.2% on Monday, Aug. 31, at $211.66. That’s below its pre-earnings release peak of $251.01 on Aug. 20.
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MRVL stock – last 3 months – Barchart – Aug. 31, 2026
Marvell Technology’s Aug. 27 Q2 earnings release exhibits income was increased than expected, according to Seeking Alpha, but earnings per share were just 1 cent higher than forecasts.
As Barchart reported, its report growth in income and earnings was propelled by information middle demand, which is expected to keep robust.
Lower FCF and FCF Margins
But here is why I think the stock is down. Free money movement (FCF), FCF growth, and FCF margins were much decrease than the high efficiency achieved in Q1. In short, the market was disenchanted that the company did not repeat these high growth charges and margins.
Marvell Technology would not report its FCF numbers. But Stock Analysis information exhibits that in Q2 it generated $478.8 million, in contrast to $414.1 million a yr in the past. That was 15.62% increased. However, in Q1, FCF growth YoY was increased at 125.6%.
Moreover, in contrast to last yr’s Q2, the FCF margin was decrease. For instance, in Q2, its FCF as a % of income was 17.48% in contrast to 20.64% a yr in the past, and 19.98% in Q1.
The perpetrator was flat working money movement in contrast to Q1 and high capex necessities. For instance, working money movement was $605 million in Q2 vs. $638.8 million in Q1. Investors do not like to see decrease OCF, particularly when income was increased in Q2 (i.e., $9.45 billion, +8.4% in Q2 over Q1 8.717 billion).
The level is that this has led to fears about ongoing OCF and FCF margins. But is this overdone?
Forecasting FCF
For one, over the previous yr, as of Q2, its FCF margins have remained robust. For instance, Stock Analysis reports that the trailing 12-month (TTM) FCF margin in Q2 was 18.31%. That’s only barely decrease than the Q1 TTM FCF margin of 19.11%, but much increased than the 17.04% 2026 FCF margin.
Second, next yr’s income is forecast to explode over 51%. Analysts project $18.22 billion in income vs. their $12.04 billion forecast for 2026. Demand from information facilities for its chips is still extraordinarily robust.
As a outcome, even if Marvell Technology generates just an 18.3% FCF margin, its FCF should rise dramatically:
$18.22b income 2027 x 0.183 = $3.334 billion FCF
That’s nearly 93% increased than the $1.73 billion in FCF it has generated over the last yr, according to Stock Analysis information.
This implies a much increased valuation for MRVL over the coming yr.
Higher MRVL Price Targets
For instance, on Aug. 31, MRVL had a $190.22 billion market capitalization. That means the market is valuing its $1.73 billion in TTM FCF at less than a 1% FCF yield:
$1.73b / $190.22b = 0.909% FCF yield
So, just to be conservative, once the market realizes that FCF next yr will attain $3.33 billion, it values this with a increased 1.30% yield (i.e., a 30.8% cheaper metric):
That’s 34.8% increased than at this time’s market cap. In other phrases, the price goal (PT) is 34.8% increased:
$211.66 x 1.348 = $285.32 PT
Analysts agree. Yahoo! Finance has an average PT of $278.89 from 44 analysts. And Barchart’s PT is $290.94.
The backside line is that MRVL stock has vital upside, despite the newest outcomes.
Shorting OTM Puts
One profitable method to play MRVL, by setting a decrease potential buy-in, and getting paid to wait, is to short out-of-the-money (OTM) places.
For instance, the $190.00 put strike price, which is over 10% below Monday’s close, expiring in one month (Oct. 2, 2026), has a midpoint premium of $5.15.
That means a short-seller can make a 1-mo yield of 2.71% (i.e., $5.15/$190.00 = 0.0271).
The short vendor posts $19,000 in collateral per put shorted with their brokerage firm. Then they enter an order to “Sell to Open” 1 put at $190.00 for expiry on Oct. 2. The account will then obtain $515. That’s 2.71% of the collateral posted.
As long as MRVL stays over $190, the obligation to buy 100 shares at $190 will go away. Then the collateral will be launched. But even if an project is made, the breakeven level is decrease:
$19,000 – $515 = $18,485 spent on 100 MRVL shares, i.e., $184.85 per share
That is 12.67% below Monday’s close. That exhibits that this is an enticing method to play MRVL. You get paid while ready to probably buy shares decrease.
Moreover, the expected return (ER) is high if the investor can repeat this every month for a yr: 2.71% x 12 = 32.52%. This ER is close to the 34.8% buy-and-hold ER proven above, albeit with much decrease risk, since the potential buy-in is decrease.
The backside line is that shorting OTM MRVL places is an enticing method to play MRVL over the coming yr.
On the date of publication, Mark R. Hake, CFA did not have (either instantly or not directly) positions in any of the securities talked about in this article. All data and information in this article is solely for informational functions. This article was initially revealed on Barchart.com
