Stock Story -
What Happened: Shares of networking chips designer Marvell Technology (NASDAQ: NASDAQ:MRVL) jumped 12.5% in the pre-market session after the company reported second-quarter earnings results. Revenue beat, and gross margin improved. The top line was driven by strong performance in the Data Centre segment, as demand for its AI custom silicon products developed for customers like Google (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) Web Services (AWS) continued to soar. Management also provided strong guidance for its AI business. Notably, AI-related revenues are expected to exceed the previous guidance of $1.5 billion in FY25 and $2.5 billion in FY26. Overall, this was a solid quarter.
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What is the market telling us: Marvell Technology’s shares are very volatile and over the last year have had 22 moves greater than 5%. But moves this big are very rare even for Marvell Technology and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 16.9% on the news that the company reported fourth-quarter results and provided revenue and EPS guidance for the next quarter, which fell below analysts' expectations. Revenue and EPS guidance for the current quarter also underwhelmed and came in roughly in line with expectations. The results were driven by underperformance in its Carrier infrastructure and Auto/Industrial segments, offsetting strength in Data Center and Enterprise Networking.
Taking a closer look at the results, Marvel's Data Center segment did the bulk of the heavy lifting during the quarter, recording an impressive growth of 54% year on year, which covered the weaknesses in most of the other segments. The Data Center business also continued to benefit from the demand for AI. Notably, revenue from AI drove 10% of overall revenue in FY'204 ( vs. 3% in the previous year) and came in over $200m in the fourth quarter. For the next quarter (Q1'2025), the company expects the Data Center revenue to record sequentially low single-digit growth.
Lastly, the company announced a $3 billion increase to its share repurchase program, bringing the total available authorization to $3.3 billion.
Overall, the results could have been better, considering the huge expectations placed on the company given its AI potential.
Marvell Technology is up 29.5% since the beginning of the year, but at $75.32 per share it is still trading 11.5% below its 52-week high of $85.09 from March 2024. Investors who bought $1,000 worth of Marvell Technology’s shares 5 years ago would now be looking at an investment worth $3,142.
