The Stock of Marvell Dropped After the Company Failed to Meet Nvidia's High Bar for Artificial Intelligence

Marvell Technology Inc. faced a challenging benchmark this week, particularly following Nvidia Corp.'s astounding display of data-center sales that exceeded analysts' projections by billions of dollars, leading to a remarkable response from Wall Street.

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However, Marvell MRVL, -6.62% fell short of replicating Nvidia's performance, and the consequence was evident in the decline of its stock on Friday.

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Witnessing a nearly 9% decrease on Friday, with the stock reaching an intraday low of $52.25, Marvell, a chip manufacturer with a data-center presence, reported earnings slightly surpassing expectations while providing a forecast in line with expectations.

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Notably, the company's data-center sales experienced a decline of 29%, amounting to $459.8 million in the latest quarter. Despite this dip, the figures still managed to surpass the FactSet consensus of $439.9 million. In contrast, Nvidia had previously disclosed data-center sales that exceeded Wall Street's estimates by over $2 billion, presented just a day before Marvell's report.

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TD Cowen analyst Matthew Ramsay commented that Marvell's report was "largely anticipated" given the boost from AI-related advancements countered by weaknesses in other segments. However, Ramsay emphasized that Marvell needed more robust figures to impress investors who were still captivated by Nvidia's remarkable results. The "lack of significant upside" in the last two quarters likely contributed to investors' expectations not being met.

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Acknowledging that Marvell cannot be directly compared to Nvidia, Ramsay highlighted that Marvell's results were solid but might have disappointed investors due to the contrast in tone and the actual attachment to Nvidia's systems following their report.

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Ramsay assigned the stock an outperform rating along with a $65 price target.

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Mizuho desk analyst Jordan Klein noted that while Marvell's forecast may have been underwhelming, their AI-related sales outperformed predictions. Klein pointed out that Marvell was not expected to guide or sound similar to Nvidia. The key positive aspect was the higher-than-anticipated AI revenue. Marvell indicated the potential to achieve $800 million in AI sales by the end of the current year.

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Susquehanna Financial analyst Christopher Rolland emphasized that "Marvell’s Inphi was the star of the show," alluding to products such as PAM4 digital signal processors used in cloud data centers. These products were acquired through Marvell's acquisition of Inphi in 2020.

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Rolland highlighted that Marvell had elevated its revenue forecast related to AI, projecting a possible increase from $400 million to a higher figure, potentially around $550 million for the current year. This suggests an exit at around $200 million per quarter, indicating that the $800 million estimate for the next year was conservative.

Rolland conferred a positive rating and assigned a $70 price target to the shares.

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Among the analysts covering Marvell, 27 hold buy ratings, while three maintain hold ratings. Out of these, seven analysts have raised their price targets, while one has lowered theirs. Collectively, this resulted in an average price target of $70.94, up from the previous $70.27, as indicated by FactSet data.

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Despite the decline on Friday, Marvell shares have maintained a year-to-date increase of 44%, notably surpassing the 37% gain in the PHLX Semiconductor Index SOX, the 14% rise in the S&P 500 SPX, and the 29% surge in the tech-heavy Nasdaq Composite COMP over the same period.

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