Wall Street corner Yakneam: the Israeli connection to the Marvel sensation

Although the bulk of the jump came this week, it has been months since Marvel began to appear on investors’ radar, with the stock jumping almost 300% since the beginning of the year and is considered one of the fastest growing AI stocks, alongside the memory component companies. Nvidia stock, if you were wondering, rose by about 20% during that period. But behind Marvel’s meteoric rise is a blue and white division that operates in Kneam and Petah Tikva. What led to the rise of Marvel? Is there still an opportunity in the stock? And what is the Israeli division doing that excites the market so much?

The trigger for the latest spike is a speech by Jensen Huang, CEO Nvidia who arrived as a guest of Marvel CEO Matt Murphy, and estimated that Marvel would be “the next trillion dollar company”. Meanwhile, Marvel is still far from the goal, trading at a value of about $255 billion. If it continues to soar at the same pace, not an easy task at all, it may reach the goal in less than a year.

Cooperation with Nvidia

Huang didn’t just mince words. Nvidia already invested about 2 billion dollars in the company only two months ago – an investment that has already grown to a value of 6.6 billion dollars. Huang of course has an interest, beyond the return. He understands very well that Nvidia is not alone and the hunger for artificial intelligence leads to a tremendous growth in the procurement of chips and servers.

The new trend in AI – artificial intelligence agents that perform real work such as software development or conducting research work – requires more diverse artificial intelligence servers that include different types of chips, and here Marvel is also in the picture: “When you take a computing problem, break it down into a lot of parts and spread it over everything that a server farm requires – what is needed is connectivity (transfer of information between chips – AG), and this is why Marvel is so essential,” said Huang in his speech this week.

As part of the investment, the companies signed a strategic collaboration that tries to answer one of Nvidia’s biggest problems today – the tech giants’ constant search for alternatives to its products. As part of the agreement, Marvel develops customized chips for those companies, but those chips will also connect to Nvidia’s supporting systems. Thus, even those who try to avoid buying Nvidia’s advanced and expensive chips will connect to its other systems such as storage, memory and communication.

Israeli product

The credit for the move can go to Matt Murphy, Marvel’s CEO and Chairman. He foresaw the server farm revolution and transformed Marvel from a company that is mainly active in the areas of consumer products (WiFI chips, Internet access points, etc.) to a company that generates most of its revenue from chips for servers.

A week ago Marvel published the reports for the first quarter of the year and revealed that only 5% of its revenues come from consumer products, compared to over 75% from communication and AI chips it develops for cloud giants such as Amazon, Meta and Microsoft. The reports beat forecasts with total revenues of $2.4 billion in the quarter, a 28% increase compared to the same quarter last year, with a forecast to increase to $2.7 billion in the current quarter (a 35% increase compared to last year).

What else contributed to the increase in the stock is the launch from last week – which is a product of Blue and White development. The company launched the most efficient processor for optical communication within server farms designed for AI technologies, one that is capable of transferring huge volumes of information at record speed.

Over 80% of the engineers who were involved in the development and launch of the new processor come from Marvel’s development centers here in Israel – in Petah Tikva and Bikinam. Such a processor places it in direct competition with Nvidia and in particular with the Israeli Mellanox, which developed a similar chip. Marvel believes so much in the Israeli product and development, that it accelerates the recruitment of its employees here in Israel.

Marvel has been active in Israel for almost thirty years and the Israeli branch under the management of Eran Haruti has 500 employees, after a 10% increase in the last year. The division that developed the new chip is a spin-off of the Israeli Galileo, which was purchased by Marvel at the beginning of the millennium for $2.7 billion.

This transaction, by the way, turned Avigdor Vilanz, the CEO and founder, into a serial chip entrepreneur, and his number 2 in the company was Eyal Waldman, later the founder of Mellanox. It then purchased Redlan, the communications chip company of the Yehuda and Zohar Zisafel brothers, for $150 million. The development centers in Petach Tikva and Bikneam are considered strategic for the company due to the expertise developed by Israeli engineers in the field of communications.

Is there still a chance?

After the spike in the stock, is Marvel still an investment opportunity? Most analysts and investment banks have not yet reacted to the events of the last day in Marvel stock, and the average target price of analysts, according to the Wall Street Journal, is significantly lower than the price at which the stock is trading. However, Stifel Bank raised the target price from $230 to $321, citing the high demand for communications equipment for server farms and the launches this week.

Investor Gary Black, a partner in the “Future Fund” fund, said after Huang’s speech that Marvel and the competitor Broadcom are both positioned as “the big winners on Wall Street for AI chips adapted to the requirements of companies. They produce chips adapted to the requirements of giants, while Marvel alone has 15-20% of the chip development market on order for companies.

*** Full disclosure: The reporter is a guest of TAITRA – Taiwan’s foreign trade promotion organization behind the Computex computing conference.