Marvell stock slumps 16% after data center revenue, forecast disappoint

Shares of Marvell Technology experienced a significant decline of 15% on Friday, following disappointing data center revenue figures and a cautious forecast for the upcoming quarter. Despite a year-over-year revenue surge of 58% in the fiscal second quarter, which concluded on August 2, the company's performance fell short of market expectations. Marvell's CEO, Matt Murphy, highlighted the record revenue was driven by robust demand for its custom silicon and electro-optics products, particularly in the artificial intelligence sector. The company reported a net income of $194.8 million, translating to 22 cents per share, a notable turnaround from a net loss of $193.3 million, or 22 cents per share, reported during the same period last year. Looking ahead to the fiscal third quarter, Marvell projected revenue to be approximately $2.06 billion, with a margin of error of 5%. This estimate is slightly below analysts' expectations, which anticipated revenue of $2.11 billion. The data center segment generated $1.49 billion in sales for the quarter, yet this figure also fell short of Wall Street's expectations of $1.51 billion. During a conference call with investors, Murphy conveyed that the company expects overall data center revenue to remain flat sequentially, attributing this stagnation to the unpredictable growth patterns in its custom AI chip business. He reassured investors that growth in the fourth quarter is anticipated to be significantly stronger than in the third quarter, despite the inherent fluctuations in guidance as hyperscale cloud providers expand their infrastructure. Nevertheless, investor sentiment remains cautious, with some expressing a desire for clearer insights into the company's pipeline of new clients. Analysts from Cantor noted the difficulty in assessing Marvell's 20% target market share in the data center sector without further details. In a reaction to these developments, Bank of America downgraded Marvell's stock from buy to neutral and adjusted their price target from $90 to $78, citing concerns regarding the company's AI growth potential in the near to medium term.