Marvell's earnings: beats on top line, weak margin guidance
Marvell (MRVL) trades at a higher price-to-earnings (P/E) ratio than its peer group. Going into these results, it beat on revenue by a little over $40 million and beat earnings per share by a penny. It then guided lower on margin, and the stock fell about 10% on the day.
The margin cut was roughly 1%. Even with that, the company raised guidance for fiscal years 2027 and 2028, so the underlying numbers are improving. Projected figures: about $18 billion for 2028 and about $12 billion for 2027, which would mean large cash flow if hit.
The Google deal and Nvidia backing
The main upside is the Google (GOOGL) relationship, though it is potential, not guaranteed. Marvell struck a deal where Google gets warrants in return for buying a lot of product from Marvell. If Google buys up to the capacity ceiling, the arrangement could bring about $120 billion of revenue over roughly six years. That is a big "if" and a big contingency.
Through the warrants, Google could end up with a stake in the company. Marvell also has investment from Nvidia (NVDA), which will matter a lot. Both relationships only pay off if demand shows up. If demand slows or the sector hits trouble, there is a ripple effect across these tied-together companies, and Marvell's stock would face challenges.
Was it wise for Marvell to give a multi-year outlook that points to roughly doubling revenue, when many companies stay conservative? The deal is what it is, so the company communicates it, and it is good news. The risk is that Marvell now has to deliver on it.
Growth lags peers, and the valuation is the problem
Over the quarter, Marvell's revenue growth was in line with peers. Over the past year it trailed them. Nvidia posted about 117% revenue growth. Broadcom (AVGO) posted about 150%, using older numbers, since it reports on September 2nd. Marvell grew about 46-47%. Slower growth combined with a much higher P/E makes the stock hard to defend short term.
Nvidia has been praised for its valuation. Marvell's P/E was over 80 before the drop. After the 10% decline, the P/E fell to about 56 or 57, a much improved level for anyone interested in the stock. More weakness could follow near term, and the price may average down further. Marvell has an investor day coming up, which could bring news. Broadcom's September 2nd earnings will offer a window: if Broadcom is growing at the same pace or faster, that will likely move Marvell's stock too.
Over one year, Marvell (MRVL) is up 190%, so it had room to pull back. A 10% drop does not hurt long-term shareholders.
The AI chip space and the macro risk
These chip and AI companies form a new tech stack, almost a new version of the leading names. That is where capital is flowing. Hyperscalers are spending heavily, so this is the space to be in, but it stays volatile and risky. Investors, including those working with Schwab (SCHW) advisors, should watch how much they put into it.
Stocks sold off after Kevin Walsh spoke and struck a more hawkish tone. As rates move higher, borrowing costs rise, which hits tech stocks built on borrowed money. Debt is piling up in the tech sector and will have to be paid. If the revenue, growth, and investments do not pay off, that becomes a problem, especially as some AI companies start pricing their services lower. That price competition could make for some hard quarters ahead. The hope is that Walsh is being overly conservative. The administration wants the stock market to go higher.
Capacity: demand outruns supply
Every one of these companies says the same thing: they cannot fill all their sales orders. Justin Wong at Nvidia has said Nvidia has more orders than it can meet. Companies are building out infrastructure. Marvell is a fabless chip company, so it leans on Taiwan Semiconductor (TSM) to build its products and does not run the same setup as some rivals. The industry still cannot meet product demand, which is a good sign and a reason investors are excited about the next several years.
