Marvell’s (MRVL) AI Growth Is Real — The Market Just Wants It Now

Marvell Technology (MRVL) stock plummeted more than 8% to $221.60 on August 28, erasing $17.4 billion in market value in a single day. This followed the chipmaker's release of record quarterly results and a subsequent increase in its growth targets for fiscal years 2027 and 2028. Investors were perplexed by the stark contrast between the strong financial performance and the sharp drop in stock price.

Big Tech's AI spending was projected to surpass $740 billion in the current year, and Marvell had emerged as a key player in showcasing that spending translating into chip demand. The company's fiscal second-quarter revenue rose 37% year over year to $2.739 billion, with data center revenue growing by 46% year over year. Marvell's earnings per diluted share reached $0.94, and cash flow from operations amounted to $605.5 million.

Management confidently raised guidance twice, projecting fiscal 2027 revenue to grow by approximately 45% and fiscal 2028 revenue to reach roughly $18 billion. The Google custom-chip agreement played a significant role, granting Google the right to purchase up to 58.97 million Marvell shares at $206.58 each through fiscal year 2033, contingent upon meeting purchase targets for Google's Tensor Processing Units (TPUs).

Analysts pointed to this deal, along with prospects with Microsoft, as reasons why a $20 earnings per share figure by the end of the decade could be plausible. Eight brokerages raised their price targets after the results, with a median target of $275. However, the gap between the impressive results and the market's reaction was attributed to timing.

CEO Matt Murphy stated that the Google-related revenue already included in Marvell's targets through fiscal 2028 is minimal, with the relationship becoming more substantial in fiscal 2029. Morgan Stanley analysts noted that the upside from the Google deal was largely already factored into the company's prior guidance, leaving investors eager for an immediate surge in numbers that they deemed to be waiting instead.

Despite the positive outlook, Marvell's stock traded at a rich valuation of 59.52 times forward earnings as of August 28, suggesting that the Google-driven growth story must fully materialize for the premium multiple to hold.