Marvell Stock Slides on Weak Data Center Revenue, Outlook

Marvell Technology (MRVL) shares fell 15% after a weaker-than-expected data center revenue report and cautious Q3 outlook, despite exceeding EPS estimates. While Q2 revenue grew 58% YOY, driven by AI demand, Q3 revenue guidance of $2.06 billion fell short of expectations. Investors are seeking clarity on customer engagements, and Bank of America downgraded MRVL’s stock, citing concerns about near-term AI growth. The company anticipates a stronger Q4, attributing Q3’s flatness to “nonlinear growth” in custom AI chips.

Marvell Stock Slides on Weak Data Center Revenue, Outlook

Marvell Technology Group Ltd. headquarters in Santa Clara, California, on Sept. 6, 2024.

David Paul Morris | Bloomberg | Getty Images

Marvell Technology (MRVL) shares took a significant hit on Friday, plummeting 15% as investors reacted to weaker-than-expected data center revenue and a cautious outlook for the current quarter. The dip highlights the sensitivity of Wall Street to any perceived stumbles in the booming AI chip market.

Here’s a glimpse at the company’s performance versus LSEG consensus estimates:

  • Earnings per share: 67 cents adjusted, narrowly surpassing the expected 66 cents.
  • Revenue: $2.01 billion, aligning with expectations.

Despite the stock reaction, Marvell CEO Matt Murphy emphasized the company’s record-breaking second quarter, with revenue surging 58% year-over-year. This growth, he stated, was significantly fueled by robust AI demand for its custom silicon and electro-optics solutions.

The company reported net income of $194.8 million, or 22 cents per share, a stark contrast to the net loss of $193.3 million, or 22 cents per share, recorded during the same period last year. This turnaround underscores Marvell’s progress in capitalizing on high-growth opportunities.

However, the market’s apprehension stems from the company’s guidance for the fiscal third quarter. Marvell projects revenue of $2.06 billion, with a margin of error of plus or minus 5%. This figure falls slightly short of the $2.11 billion anticipated by analysts, according to LSEG data, casting a shadow over near-term growth prospects.

Marvell’s strategic focus on custom-designed chips and hardware catered to cloud giants like Amazon and Microsoft positions it at the forefront of infrastructure development for AI and other demanding applications.

While data center segment revenue reached $1.49 billion during the quarter, it missed Wall Street’s expectations of $1.51 billion, as per StreetAccount estimates. This slight shortfall appears to be a primary driver of investor unease.

During the earnings call, Murphy addressed concerns, stating that Q3 data center revenue is projected to remain flat sequentially, attributing this to anticipated “nonlinear growth” in the custom AI chip sector. He reassured investors that a markedly stronger fourth quarter is on the horizon.

Murphy further explained that the fluctuations in guidance are typical when dealing with the large-scale infrastructure build-outs undertaken by hyperscale customers. He characterized the situation as expected “lumpiness.”

Nevertheless, some investors are clearly seeking greater granularity regarding Marvell’s pipeline of new customer engagements. Cantor analysts, in a note to clients on Thursday, expressed reservations about underwriting the company’s ambitious 20% data center market share target without a clearer view of its growing customer base. In effect, investors want a more detailed “bottoms up” view of how the company expects to get there.

Adding to the market pressure, Bank of America downgraded Marvell’s stock from “buy” to “neutral” on Friday, concurrently reducing its price target from $90 to $78 per share. This decision partly reflects concerns about Marvell’s AI growth trajectory “in the near/medium term,” indicating a broader reassessment of the company’s risk-reward profile by major investment firms.

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Marvell year-to-date stock chart.

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