MaxLinear (NASDAQ:MXL) experienced a sharp reversal in after-hours trading on Thursday, with shares sliding 11.2% to $81, even after the company released a third-quarter revenue forecast that significantly outpaced Wall Street expectations. The decline erased a portion of the gains from a four-session rally that had pushed the stock up 27%.
The midpoint of the company's third-quarter revenue guidance stands at $215 million, which is 23.6% above the consensus estimate of $173.9 million from FactSet (NYSE:FDS). This robust outlook underscores strong demand for MaxLinear's connectivity solutions, particularly in data center infrastructure.
Initial calculations based on the guidance suggest substantial operating leverage. The company estimates a non-GAAP incremental operating margin of 49.6%, meaning nearly half of the sequential revenue increase is expected to flow through to operating income. For the second quarter, non-GAAP operating income was $37.6 million; at the guided midpoints for Q3, that figure would rise to approximately $60.5 million.
The guidance is built on a preliminary gross margin of 60% and operating expenses of $68.5 million. The non-GAAP operating margin is projected at 28.1%, up from 22.3% in the second quarter, reflecting improving profitability as revenue scales.
Second-quarter results also showed strength. Revenue climbed 55% year-over-year to $168.8 million, driven by a surge in infrastructure sales, which accounted for 84% of annual growth. Infrastructure represented 50% of total sales, up from 32% a year ago. Broadband revenue declined 5.6%, while connectivity revenue rose 15.6% and industrial/multi-market sales soared 158%.
CEO Kishore Seendripu highlighted the ramp of the Keystone PAM4 DSP platform for 800G applications, targeting optical AI data center connections. This product is a key driver of the company's growth in high-speed data center markets.
However, the gap between GAAP and non-GAAP profitability remains wide. GAAP operating margin for the second quarter was negative 2.5%, compared to a positive 22.3% on a non-GAAP basis. Stock-based compensation totaled $27.5 million, or 16.3% of revenue, contributing to the divergence.
Market context added to the volatility. MaxLinear had dropped 21.3% the prior week before its recent surge. The stock's after-hours decline came despite a 5.1% gain in regular trading on Thursday, contrasting with a 2.15% drop in the Nasdaq. Shares of peers Marvell Technology (NASDAQ:MRVL) slipped 0.8%, and Broadcom (NASDAQ:AVGO) closed down 1.1%.
At $81, the preliminary enterprise value stands at roughly $7.4 billion, representing 8.6 times the annualized midpoint of third-quarter revenue. The company faces concentration risks, as a single customer contributed 11% of first-half revenue, and the top ten customers accounted for 55%. Customers have not made any long-term purchase commitments.
Looking ahead, the Federal Reserve is scheduled to meet on July 28-29, which could introduce additional market-moving factors. Friday will mark the first full trading session response to MaxLinear's guidance.
