With the market rally heavily concentrated in tech, investors are eager for the sector's next best play. Spear Invest Founder and CIO Ivana Delevska joins Yahoo Finance for Good Buy or Goodbye, discussing two disparate tech players: Roku (ROKU), which benefitted from streaming's consumer tech wave, and Marvell Technology (MRVL), positioned at the intersection of AI and business-to-business technology.
Delevska rates Marvell her "good buy," claiming the networking market is experiencing explosive AI-driven growth. The company is also developing custom silicon chip-based technologies to compete with Nvidia (NVDA). Delevska calls Roku (ROKU) her "goodbye." The US streaming market is nearing full penetration, she explains, leaving little room for growth.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
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- It's a big noisy universe of stocks out there. Welcome to Good Buy or Goodbye. Our goal to help cut through that noise to navigate the best moves for your portfolio.
Today, we're looking at the tech sector in two very different players. One, that benefited from the consumer tech wave of streaming, and another that could be tipped for the next big thing-- AI and business-to-business technology. So what's the best way to play it now? I'm here with Ivana Delevska, Spear Invest founder and CIO. Thanks so much for being here.
IVANA DELEVSKA: Thanks for having me.
- So let's get to your buy stock, the one that you like here and that is Marvell Technology. The stock's already rallied pretty well over the last year. But let's get to your investment case here. First of all, you say networking is experiencing explosive growth. And one of the ways you're looking at that is looking at the networking market, especially as indicated by Nvidia.
IVANA DELEVSKA: That's right, Julie. So the networking market is experiencing explosive growth driven by AI. And basically what's been happening is that players like Nvidia are introducing new products, and players like Marvell are introducing new products in this market and they're able to grow and capture more market share.
So the surprise that happened this market used to be a $2 billion market size expected to grow pretty rapidly. All of a sudden, Nvidia reported $10 billion run rate. So the growth that's happening is just of meteoric rise, right. Like it's not something that we've seen before.
- So in other words here when we're looking at this Nvidia third quarter run rate and this was the pre-existing estimates for the whole market. So obviously, these are going to have to come higher if just Nvidia is already at that level, right?
IVANA DELEVSKA: That's right.
- OK, so let's talk about some of your other points here, Custom Silicon is what we're going to start to see here. What does that mean? And what does it mean for Marvell specifically?
IVANA DELEVSKA: So these are hyperscalers that are developing their own chips to compete with Nvidia. And a lot of them are doing this just so they're able to secure their supply, right. So you don't want to rely on one player, you want to have your own in-house design and you would be using somebody like Marvell to help you achieve that.
- Sort of a contract player?
IVANA DELEVSKA: That's right. So what we're seeing, the networking piece is what started recovering this year and it's going to continue in 2025. The Custom Silicon market is in earlier innings. So these companies are just starting to develop their own chips so it's going to be a driver for next year more than this year.
- Interesting. And so let's talk a little bit more about the cycle of where we are as well in non-cloud markets, and what that means for Marvell also.
IVANA DELEVSKA: So we just went through a downturn in non-cloud enterprise spending, and we expect that to be bottoming out this quarter. So we expect that our comps are going to get easier-- significantly easier as we look out to the next few quarters, and that's going to be a pretty good setup for earnings for this company.
- Well, like we always do, we like to talk about what is the potential downside risk for the stock that you like. And in the case of Marvell, there is competition obviously that's out there from some of the other big players.
IVANA DELEVSKA: That's right. And the biggest downside or the biggest risk here is that companies like Nvidia, may also try to enter the custom silicone market. So there was an announcement that Nvidia may potentially be interested in entering this market. However, I would caution that hyperscalers are looking for alternative sources of supply. So you don't want to be relying on Nvidia for everything.
So we think this is going to be a big market, over trillion dollar of installed data center base needs to be upgraded. So there is going to be room for plenty of players like Nvidia, like AMD, and like Marvell.
- OK, so that's the stock you like. Let's talk about the stock that you don't like as much or you think investors should avoid and that is Roku. And that stock most recently, in particular has seen a dip in the wake of its earnings. Here you're looking at a pretty crowded streaming market. We were actually just talking about that earlier with Michael Wolfe that there are a lot of players out there right now.
IVANA DELEVSKA: That's right. So we saw basically the consumer technology market drive the prior cycle, but now a lot of this has become very crowded. Streaming in particular is very crowded and Roku is a player in this space.
So as we saw from their latest earnings report, it's been increasingly difficult to grow in the US, that's the profitable market. So they're going to be facing challenges here as we look forward.
- And let's talk about where some of that competition is coming from, right. Because it is big companies with a lot of resources, like the Amazons of the world. So what does that mean for Roku?
- So that's a pretty negative set up for them, because these big companies are investing billions of dollars in this. And they may not necessarily be doing it to generate profit, they may doing it to benefit other parts of their business. So that's a pretty big risk when you're competing with people that are not necessarily looking for returns on their invested capital, in this space specifically.
- Yeah, like in the case of an Amazon or an Apple for example, that have those streaming offerings. And then if you look at the US market in particular, like we all have streaming stuff already. So how much more could a Roku grow? I mean, US is one thing. So talk to me about US but also talk about international, if there's any opportunity there?
So there is an opportunity to grow internationally. However, the pricing internationally is much weaker, and this is a pretty significant tailwind when you have growth coming from lower priced regions. So we're going to see impact to margins coming from this point.
- Well, just like we talked about what could go wrong for Marvell, let's talk about what could go right for Roku. And on this point, maybe we could see if there's a big tech rally that Roku could get caught up in it. Is that how you're thinking about it?
IVANA DELEVSKA: Well, that's right. We think we're at the bottom of the technology cycle. We just went through a pretty horrific 2022, and 2023 was the start of a recovery. So we expect a multi-year technology recovery, and Roku can be a beneficiary of that, just like any other tech stock.
However, I would say that there is a lot more opportunities in the B2B technology space, where that space did not go through the same type of upturn that consumer faced. So that's a better place to be focusing on to look for upside.
- OK. And then just quickly, just close your eyes, are you long Marvell or are you short Roku? How are you positioned in these stocks?
IVANA DELEVSKA: So we own Marvell in our ETF and we do we do not own or short Roku.
- OK, gotcha. All right, let's summarize what you have told people for them. You're telling investors buy Marvell, you think it will be well positioned to cash in on the AI boom and its products will be in demand. On the other side, you're saying people should avoid Roku, it's struggling in a saturated market and competing with some big, big players there.
