Analysis

Why Marvell Technology Sank Today

It was a bad day for many AI-adjacent stocks today as earnings failed to impress.

Shares of semiconductor up-and-comer Marvell Technology (MRVL -10.46%) sank 10.5% on Friday.

Thanks to its networking portfolio and custom ASIC (application-specific integrated chip) business, Marvell has seen bullish sentiment from investors recently. Some believe it will become a key player in the artificial intelligence (AI) race.

However, the purely AI-related portion of Marvell’s business apparently didn’t live up to the hype in its first-quarter results reported Thursday evening.

AI data centers are booming but at the expense of everything else

In the first quarter, Marvell saw revenue decline 12% to $1.16 billion, and adjusted (non-GAAP, generally accepted accounting principles) earnings per share (EPS) was $0.24, down 22.5%. While these declines may look ugly, they were nearly in line with what analysts expected.

In fact, looking under the hood, one can see a huge difference between the company’s data center segment, which includes AI revenue, and its other segments:

Segment

Q1 2025 Revenue (millions)

YOY Growth

Data center

816.4

87%

Enterprise networking

153.1

(58%)

Carrier infrastructure

71.8

(75%)

Consumer

42.0

(70%)

Automotive/Industrial

77.6

(13%)

Total

1,160.9

(12%)

Data source: Marvell Q1 2025 press release. YOY = year over year.

As you can see, AI spending appears to be crowding out everything else. That’s perhaps not surprising, but the weight of the declines in the other non-AI segments caused results to fall in line with expectations rather than exceed them.

On the bright side, the data center segment is now the company’s largest, and its huge weighting will likely lift growth in the next quarter and through 2024. In the release, management guided for 8% sequential growth or 36% annualized.

Management attributed the strong sequential growth mainly to custom ASICs, which certain large cloud infrastructure giants employ in the design of their own custom AI accelerators. And in the second half, the company sees continued data center growth, along with a recovery in networking and carrier infrastructure.

Still, with the stock up around 27.6% on the year prior to today and trading at around 51 times next year’s earnings estimates, the in-line quarter and guidance weren’t enough to overcome expectations.

Is a recovery in the cards?

Even in the wake of the Friday decline, most analysts still seemed upbeat on Marvell, as the AI story remains intact. Furthermore, the huge declines in its other segments set those segments up for a recovery as the economy improves.

Increased optical connectivity and cloud giants producing their own custom accelerators are trends that don’t appear to be slowing down anytime soon. So, while Marvell isn’t the cheapest AI stock, it’s a name to watch, especially after its recent haircut.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.

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