Why We See Something Different Than the Market for This Chip Holding
Mispriced reactions can bring about opportunity, especially if the underlying story is tracking.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Following the stock market’s pronounced move higher over the April–July period, as the June-quarter earnings season got underway, it quickly became apparent that companies delivering “beat and reiterate” quarters saw their stock prices get hit. Some of those declines were outsized relative to the guidance, especially when the year-over-year growth rates for revenue, EPS, or both were significant.
With that as a backdrop, we are seeing shares of Pro Portfolio holding Marvell Technology MRVL under pressure Friday morning due to two factors.
The company delivered July-quarter results that matched expectations with year-over-year revenue growth of 58% and EPS growth of 123%. That strength reflects robust AI and data center revenue, up 74% year over year, as well as the expected rebound in Enterprise Networking and Carrier Infrastructure, up 43% collectively on that same basis.
What’s driving the pressure on the shares is the company’s outlook for the current quarter, which calls for revenue of $1.957 billion-$2.163 billion, $2.06 billion at the midpoint, vs. the market consensus of $2.11 billion. Management sees current quarter EPS in the range of $0.69-$0.79, $0.74 at the midpoint vs. the $0.72 market consensus. While some would argue the company’s guidance is largely in line with market expectations, in today’s market, that ever-so-slight revenue shortfall is being treated as if it were a much greater miss.
It also didn’t help that some outlets reported, and I kid you not on this, “Adjusted EPS for the third quarter is forecast at $0.74, which is also less than the estimate of $0.73.”
So much for AI-generated summaries. 🤦🏻♂️
Yet, the company’s guidance still delivers impressive year-over-year gains of 36% and 72% for the total top and bottom lines.
This brings us to the second factor weighing on MRVL shares. For the current quarter, management guided the AI and data center business to be relatively flat on a sequential basis, which still means it will be up more than 35% on a year-over-year basis. Management explained this on the earnings call as being a timing issue that should result in a much more pronounced ramp in January quarter AI and data center revenue.
Marvell also said that since its June custom AI silicon event, it has won additional sockets from hyperscalers, building on the 18+ design wins that are poised to be in production this year and next year. That keeps Marvell on the path toward its stated goal of 20% of data center total available market share in 2028, up from 13% in 2024.
We’ve seen timing issues like this before with other companies as design wins matriculate and move into production, and it can be lumpy quarter to quarter. But even we understand the headline view on this is that in the current quarter, the company’s largest segment will deliver a much slower rate of growth than we’ve seen in the last several quarters.
As we see it, Marvell management did not help itself by only sticking to giving guidance one quarter at a time. Had the team offered more granular guidance for the January quarter that presented a clearer picture of the expected AI and data center revenue ramp, or even full-year guidance that would allow Wall Street to interpolate the January quarter, odds are we would not be experiencing the pressure we’re seeing in the shares Friday. Call the team tone deaf, missing the obvious, or not understanding the market, but it’s clearly a knock on them.
The above is giving rise to an “act first, think later” mentality with MRVL shares. Helping fuel that is the level of short interest, which Nasdaq pegged near 29 million shares and would take just over two days to cover.
As calmer heads prevail, folks will come to realize the operational leverage that is unfolding inside Marvell, which is dropping to its bottom line as the business leans further into end markets being driven by rising AI infrastructure demand. As those AI and data center programs ramp, Carrier Infrastructure and Enterprise Networking are forecasted to rebound further in the coming quarters, rising 30% sequentially during the October quarter. We view this as confirming our thesis on that part of Marvell’s business, and see it continuing to grow as overall AI adoption pressures network capacity.
Remember too that early in the current quarter, Marvell completed the divestiture of its Automotive Ethernet business in a $2.5 billion all-cash transaction. That brings additional flexibility as well as the ability to accelerate AI-related investments. In our view, it also makes for a much cleaner story, and with that in mind, management is going to recast its reporting segments later this year.
Our Plan for Marvell
While we are disappointed in Marvell’s guidance approach, we are also seeing what will eventually be viewed as an overreaction to an in-line quarter and in-line guidance. For us, the company’s story is tracking with what was laid out during its June custom AI silicon event, and the rebound in Carrier Infrastructure and Enterprise Networking is playing out with our thinking.
Operational leverage is emerging that is delivering more to Marvell’s bottom line, and despite in-line guidance, year-over-year EPS growth will be significant in the current quarter. That should continue as multiple AI and data center programs ramp in the coming quarters, and explains why the market sees Marvell delivering $3.50 in EPS in 2025, up from $2.80 this year, and $1.57 in 2024.
That’s a faster rate of EPS growth than the market sees for Nvidia NVDA, which is expected to grow its EPS to $6.30 next year from $2.99 in 2024. After reiterating our Nvidia price target earlier this week, we see little reason to adjust our MRVL price target as the Marvell story plays out.
As Marvell stock declines, so too will our position size, and that will give us room to pick up some additional shares in the coming days. We understand some folks are frustrated with Pro Portfolio’s position in Marvell, and we get that. But so long as the story is tracking and supported by data, we’ll look to take advantage of mispriced reactions in the market. Our thinking is that, as more than 90% of Marvell’s business is humming a few quarters from now, the July 2025 quarter guidance will be deep in the rear view.
Meanwhile, just so folks understand that we are not “in love” with Marvell, should it become evident its design wins are not matriculating, or other signs emerge that it is losing market share, we will revisit our MRVL position in the Portfolio. Good or bad, we’ll follow the data and act accordingly.
At the time of publication, TheStreet Pro Portfolio was long MRVL and NVDA.
