TLDR
- Marvell stock dropped 18% after reporting Q2 results with data center revenue missing estimates at $1.49 billion vs $1.51 billion expected
- Company posted record revenue of $2.01 billion, up 58% year-over-year, beating consensus estimates
- Q3 revenue guidance of $2.06 billion came in below analyst expectations of $2.11 billion
- CEO warned of “nonlinear growth” and “lumpiness” in custom AI chip business from cloud provider demand patterns
- Bank of America downgraded the stock from buy to neutral, cutting price target from $90 to $78 per share
Marvell Technology saw its shares crater 18% on Friday despite delivering record quarterly results. The AI chipmaker’s stock took a beating after disappointing data center revenue and cautious forward guidance spooked investors.
The company reported second-quarter revenue of $2.01 billion, matching analyst expectations exactly. This represented a massive 58% jump from the same period last year and marked a new company record.
Earnings per share came in at 67 cents on an adjusted basis, slightly beating the 66-cent consensus estimate. The company swung to a net profit of $194.8 million, or 22 cents per share, compared to a $193.3 million loss in the prior year period.
But the devil was in the details. Data center segment sales reached $1.49 billion during the quarter, falling short of Wall Street’s $1.51 billion projection. This segment now accounts for 74% of total company revenue.
CEO Matt Murphy attributed the strong overall performance to “strong AI demand” for the company’s custom silicon and electro-optics products. The data center market expanded 69% year-over-year for Marvell.
Guidance Concerns Weigh on Sentiment
The real concern came from management’s third-quarter outlook. Marvell guided for revenue of $2.06 billion, plus or minus 5%, which fell below analyst expectations of $2.11 billion.
Murphy warned investors to expect “overall data center revenue in Q3 to be flat sequentially.” He blamed this on what he called “nonlinear growth” in the custom AI chips business.
The CEO described this pattern as “lumpiness” that’s normal when large cloud providers build out their infrastructure. He did offer some hope, saying fourth-quarter growth should be “substantially stronger” than the third quarter.
Marvell creates customized chips and hardware for major cloud providers like Amazon and Microsoft. These hyperscale customers can create uneven demand patterns as they ramp up and slow down their infrastructure spending.
Analyst Reactions Turn Cautious
Wall Street wasn’t impressed with the mixed results and uncertain outlook. Bank of America analysts downgraded Marvell’s stock from buy to neutral on Friday morning.
They also slashed their price target to $78 per share from $90, citing concerns about the company’s AI growth prospects “in the near/medium term.”
Cantor analysts expressed frustration with the lack of clarity around new customer wins. They noted difficulty in validating Marvell’s goal of capturing 20% market share in the data center space.
“Without this, we find it very difficult underwriting the company’s 20% data center market share target,” the Cantor team wrote. They said they’re waiting for “more bottoms up granularity” before turning positive.
The company did achieve some operational milestones during the quarter. Non-GAAP operating margins expanded 870 basis points year-over-year to reach 34.8%.
Marvell also completed the divestiture of its automotive Ethernet business in a $2.5 billion all-cash transaction. This gives the company more flexibility for stock buybacks and technology investments.
Other business segments showed mixed results. Enterprise networking and carrier infrastructure grew 43% year-over-year, with expectations for continued 30% sequential growth.
The consumer end market jumped 84% sequentially but is expected to decline slightly in the third quarter. Following the automotive divestiture, revenue from automotive and industrial markets is expected to drop significantly.
Despite the stock selloff, Marvell secured new design wins with multibillion-dollar lifetime revenue potential during the quarter. The company’s electro-optics interconnect portfolio continues leading the industry with strong demand for 800-gig and next-generation 1.6T products.
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