Custom chip company Marvell Technology Inc. (NASDAQ: MRVL)’s shares dipped by as much as 8% in pre market trading after the firm reported its fiscal second quarter earnings report on August 27th. The second quarter financials were a solid bunch as the firm posted $2.74 billion in revenue and $0.94 in earnings per share to beat analyst estimates of $2.71 billion and $0.92. Yet, as Cramer has regularly discussed throughout this earnings season, it was the guidance that appeared to impact the share price. As part of the earnings release, Marvell Technology Inc. (NASDAQ:MRVL) bumped its fiscal year 2027 revenue estimate by $500 million to $12 billion. Cramer, who has scarcely let go of an opportunity to praise the firm’s CEO Matt Murphy, was naturally displeased with the post-earnings share price movement as he remarked in a tweet:
“Matt Murphy with a solid Marvell Q. The issue is, as is the case with so many of these, the monster run. We see this with so many data center stocks…”
Given Marvell Technology Inc. (NASDAQ:MRVL)’s chip design business, a large portion of the narrative for the firm is linked to the AI buildout. Custom AI chips, also called application specific integrated circuits (ASICs), have long caught investors’ and big tech’s eye due to the pricey and short-in-supply NVIDIA AI GPUs. On this front, the Q2 revenue growth of 37%, coupled with the fact that management pointed towards “a significant acceleration” in the second fiscal half for the custom chip business hint that Marvell Technology Inc. (NASDAQ: MRVL) is experiencing tailwinds from custom AI chips. Specifically, management outlined that not only does it expect the custom chip business to grow 20% in the second half but that the business can double in FY28 due to multiple hyperscalers ramping up their programs.
Yet, at the same time, risks remain. For instance, Marvell Technology Inc. (NASDAQ:MRVL)’s data center business accounted for 79% of its Q2 revenue. When coupled with the fact that custom AI chip orders are typically from large tech giants, one customer deciding to switch designers carries outsized risks for Marvell Technology Inc. (NASDAQ:MRVL). Additionally, the firm’s $3.15 billion third quarter revenue guidance points towards a 15% sequential growth rate to hint at a potential growth slowdown. Not to mention, the forward P/E before the earnings release was 60x, or at historical highs to leave little room for error as the post-earnings pre-market share price performance demonstrated.
Looking at hedge fund sentiment, interest appeared to improve significantly in the second quarter. In Q2, 96 out of the 1,006 funds tracked by Insider Monkey had held a stake in Marvell Technology Inc. (NASDAQ:MRVL), which marked substantial growth over the 79 out of 1,022 funds in Q1. Among the notable increases was D E Shaw‘s $746 million stake, which grew by 658%. Short interest as a percentage of float was 3.79%.
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Disclosure: None.
