Marvell Technology Inc. (NASDAQ: MRVL) experienced a sharp sell-off on Friday, with shares closing at $216.62, down 10.28% from the previous session. The decline came despite the company reporting record quarterly revenue and raising its forward guidance, as investors zeroed in on the timeline for its highly anticipated custom chip partnership with Google.
Record Revenue, But a Cloudy AI Horizon
For its fiscal second quarter, Marvell posted revenue of $2.74 billion, a 37% year-over-year increase and an all-time high for the company. Data-center sales were the primary growth driver, surging 46% to $2.17 billion and representing 79% of total revenue. GAAP net income for the quarter stood at $308 million.
Despite these strong results, management indicated that significant revenue contribution from Google's custom AI chips is not expected until fiscal 2029. This timeline disappointed investors who had hoped for a faster ramp-up, especially given the potential $120 billion in cumulative revenue from the deal by the end of fiscal 2033.
Market Reaction and Valuation Concerns
The stock's decline reflects a valuation reset. Marvell currently trades at 58.4 times forward earnings, a substantial premium to peer Broadcom Inc. (NASDAQ: AVGO), which trades at 32.2 times forward earnings. The delayed AI revenue timeline has raised questions about whether this premium is justified in the near term.
Trading volume was heavy, with 48.7 million shares changing hands, indicating strong investor participation in the sell-off. The market's reaction underscores the sensitivity of high-multiple technology stocks to any perceived delays in growth catalysts.
Guidance and Margin Pressure
Looking ahead, Marvell forecasts fiscal third-quarter revenue of $3.15 billion, plus or minus 5%, which would represent roughly 15% growth from the second quarter's midpoint. The company also projects adjusted earnings per share of $1.10 for the quarter.
However, the company's margin outlook came in lighter than expected. Marvell guides for non-GAAP gross margin in the range of 57.5% to 58.5%, below the prior quarter's 58.9%. This margin compression is likely a result of the product mix shifting toward custom silicon and increased competition.
Long-Term Growth Outlook
Despite the near-term headwinds, Marvell remains optimistic about its long-term growth trajectory. The company projects approximately 45% revenue growth for fiscal 2027 and aims to reach around $18 billion in revenue by fiscal 2028, driven primarily by custom silicon and connectivity solutions.
CEO Matt Murphy emphasized that the Google deal's impact will become notably larger starting in fiscal 2029, suggesting that the company's growth story is intact but will take longer to materialize than some investors had hoped.
Wall Street Remains Bullish
Despite Friday's drop, Wall Street sentiment remains largely positive. The average price target among 44 analysts stands at $278.89, implying a 28.8% upside from Friday's closing price. Targets range widely from $126 to $400, reflecting divergent views on the company's growth prospects.
Following the earnings report, at least eight brokerages raised their price targets, with the median target climbing to $275, according to LSEG data cited by Reuters. This suggests that many analysts view the pullback as a buying opportunity.
Risks and Upcoming Catalysts
Investors should be mindful of several risks. Delays in custom-chip timelines are possible, and demand is concentrated among a few hyperscale customers. Profitability could be impacted by thinner margins, export restrictions, and limited access to advanced packaging technologies.
The next major test for Marvell comes on October 6, when the company hosts its investor day. Management will need to convincingly demonstrate that the projected fiscal 2029 revenue from Google and other custom AI chip customers supports the current valuation premium. Until then, volatility may persist as the market digests the longer-than-expected wait for AI-driven revenue acceleration.
