Marvell Technology, Inc. (NASDAQ:MRVL) delivered a quarterly beat and raised its revenue outlook, yet the stock plunged more than 10% the following day. The sharp reaction led Jim Cramer to question, during the September 8 Mad Money episode, why investors punished a company whose AI business continues to accelerate.
What the heck just happened to the stock of Marvell when it reported a week and a half ago? This semiconductor company with a major data center exposure reported a healthy beat and raise, yet the stock plunged more than 10% the next day. Seems silly. Why did it get hit so hard? Some of that’s because the expectations were extremely high since the stock’s been on fire. Some of it’s because we got more color on Marvell’s collaboration with Google. They’re making chips to rival NVIDIA’s, but it turns out it’ll be years before they really start boosting the numbers. Still, the company’s making fortunes versus what we thought it could not that long ago.
Why Did Marvell Stock Fall After Earnings?
Marvell Technology, Inc. delivered a strong fiscal second quarter, with revenue of $2.739 billion, up 37% year over year, and non-GAAP diluted earnings of $0.94 per share. The company also raised its revenue outlook for both fiscal 2027 and fiscal 2028. CEO Matt Murphy said AI-related bookings remained “exceptionally robust.” He also said the company was seeing broad-based strength across its data center portfolio, including strong demand in Connectivity and a significant acceleration in its Custom business beginning in the second half of fiscal 2027.
Marvell’s Google AI Chip Deal: Why Fiscal 2029 Matters
Marvell Technology, Inc.’s expanded relationship with Google represents a significant opportunity for its Custom silicon business. Under the agreement, the company disclosed a performance-based warrant structure tied to 240 revenue milestones of $500 million each, based on discretionary purchases by Google and its affiliates through fiscal 2033. Full vesting of the performance-based portion of the warrant would require $120 billion in cumulative Custom Products revenue, based on 240 revenue milestones of $500 million each. The long duration of the agreement makes the timing of the agreement important. While some revenue associated with the Google relationship is already incorporated into Marvell’s nearer-term outlook, management said programs tied to the expanded opportunity should contribute much more significantly in fiscal 2029. Marvell expects a significant acceleration in its Custom business beginning in the second half of fiscal 2027.
Marvell Bear Case: Execution and Timing
The main risk is the pace at which the Custom business ramps. Marvell Technology, Inc. needs to successfully ramp its Custom silicon programs while meeting the product requirements and deployment schedules of major customers. If those programs ramp later or more slowly than expected, the financial benefits could be pushed further into the future. The company’s latest filing highlights several execution risks, including its reliance on a limited number of customers, the need to win and retain design wins, accurately forecast demand, and successfully develop and deliver new products. That leaves investors focused on execution. Strong AI demand is already evident in its results, but it remains to be seen whether the company’s Custom business can convert that demand into sustained revenue and earnings growth at the expected pace.
Marvell Hedge Fund Ownership Rises in Q2
Institutional positioning increased in the second quarter. Insider Monkey, which tracks more than 1,000 hedge funds, counted 96 hedge funds holding MRVL at the end of the second quarter, up from 79 in the first quarter. Additionally, the short position was approximately 3.2% to 3.8% of float.
Marvell Technology, Inc.’s October 6 Investor Day should provide further detail on the company’s Custom business and long-term AI strategy. Until then, investors will be watching whether the significant acceleration the company sees beginning in the second half of fiscal 2027 translates into sustained growth.
READ NEXT: Jim Cramer Picks J&J (JNJ) Over Eli Lilly (LLY) and Pfizer (PFE) Among These Healthcare Stocks and After Years of Sideways Trading, Jim Cramer Sees New Life in Box, Inc. (BOX).
