Performance and Guidance "Did Not Exceed Expectations," "ASIC Giant" Marvell Tech Failed to Meet "High AI Expectations," Stock Price Plummets Again

In today's capital market driven by the artificial intelligence (AI) boom, merely "meeting expectations" is no longer sufficient. As a key player in the custom chip (ASIC) field, Marvell Technology's latest performance and outlook failed to exceed Wall Street's high expectations, leading to a significant drop in its stock price during after-hours trading.

On August 28, the custom chip giant Marvell Technology reported second-quarter revenue of a record $2.01 billion, a year-on-year increase of 58%, but it only met Wall Street's expectations. The company's adjusted earnings per share were 67 cents, also in line with analyst expectations.

Even more disappointing for investors was its outlook for the future. The company provided a third-quarter revenue guidance midpoint of approximately $2.06 billion, slightly below analysts' expectations of $2.11 billion, failing to provide the "upside performance" signal that investors were eager for.

Although CEO Matt Murphy emphasized strong demand for the company's AI custom chips and optical products, stating that "custom AI design activity is at an all-time high," the market clearly had higher expectations, resulting in a 11.28% drop in stock price after hours on Thursday, with a cumulative decline of over 30% this year.

Strategic Focus on AI, Fluctuations in Quarterly Guidance

During the earnings call, Matt Murphy revealed that the company completed the divestiture of its automotive Ethernet business in the previous quarter, aiming to make it "more flexible" to continue its stock buyback plan and invest more capital into its technology platform. He stated:

This divestiture aligns with our strategy of purposefully shifting our investments from other end markets to data centers, thereby focusing on the tremendous AI opportunities ahead of us.

He added that the company's data center division currently contributes three-quarters of total revenue. Starting from the third quarter, Marvell will consolidate non-data center end markets into a single end market for reporting.

Regarding the fluctuations in performance guidance, Murphy explained that the growth of the company's custom chip business is expected to be "non-linear." This means that the business may perform modestly in the third quarter but will "significantly strengthen" in the fourth quarter.

When asked by analysts about the "volatility" in custom business guidance, he responded that this is "not uncommon" and expects the company's optical module business to perform strongly in the next quarter, helping to support the overall revenue trend.

Additionally, the company updated its second-quarter custom design achievements, currently having 18 multi-generation XPU and export additional slots, as well as "over 50 new potential opportunities," with potential revenue estimated to reach $75 billion over their lifecycle.

Marvell refers to the non-processor components such as coprocessors and interconnects used in conjunction with its custom chips as "XPU attach."

Narrowing "Margin for Error" Under High Valuation

Analysts believe that the market's sharp reaction stems from the excessively high expectations accumulated by AI concept stocks Ethan Feller, a stock strategist at Zacks Investment Research, stated before the earnings report:

The stock's decline this year reflects the high expectations embedded in AI chip stocks, with the elevated valuations at the beginning of the year leaving almost no room for error.

Nevertheless, Feller believes that due to its ASIC chips provided for hyperscale data centers and opportunities in the networking and cloud infrastructure sectors, the chip company "remains an attractive target to participate in the AI boom."

Morgan Stanley analysts pointed out before the report's release that they expect Marvell to face short-term supply issues, but they also believe:

The company's optical solutions business for high-speed data transmission in data centers is stronger than commonly perceived and is more sustainable and profitable than its ASIC business.

Regarding the previously high investor interest in the collaboration with Amazon AWS, Morgan Stanley analysts commented:

The debate over Trainium 3 (Amazon's next-generation AI training chip) may continue, but we believe the bubble phase has passed, and we expect steady growth in its ASIC business revenue.

They believe that Marvell can grow alongside Amazon through the higher-margin "XPU attach" projects