Why Marvell Technology Stock Soared 29% Friday

What happened

Following in the footsteps of Nvidia (NASDAQ:NVDA), which soared yesterday, Marvell Technology (NASDAQ:MRVL) is off to the races Friday afternoon -- up 28.6% through 1:05 p.m. ET. Actually, that's an even better performance than the 24.4% gain that Nvidia shareholders enjoyed yesterday!

Once again, the reason is earnings.

Heading into its fiscal Q1 2024 report, analysts had forecast the semiconductors specialist would earn $0.29 per share (adjusted for one-time items) on sales of $1.3 billion. In fact, Marvell earned $0.31 per share, and sales were $1.32 billion.

So what

So Marvell beat earnings last night. Still, not all the news was good.

Fiscal Q1 sales actually declined 9% year over year (although that was a smaller decline than analysts had expected, and a smaller decline, too, than Nvidia suffered). And while Marvell reported an adjusted profit, its earnings as calculated according to generally accepted accounting principles (GAAP) were actually negative -- a $0.20-per-share loss.

Now, you might not expect investors to get quite this excited about a company losing money and "beating on sales" by less than 2%. But it's probably less Marvell's performance in fiscal Q1, and more its predictions about fiscal Q2, that are behind today's rally in share price.

Turning to guidance, Marvell CEO Matt Murphy said sales will grow sequentially in Q2, to $1.33 billion plus or minus 5%, and "accelerate in the second half of this fiscal year." Furthermore, "AI has emerged as a key growth driver for Marvell [and] ... we are forecasting our AI revenue in fiscal 2024 to at least double from the prior year and continue to grow rapidly in the coming years."

Now what

What does this mean in dollars and cents? Well, sad to say, Marvell's Q2 prediction isn't quite such good news as some investors seem to think.

One year ago, Marvell booked $1.52 billion in fiscal Q2 2023 revenue. Last quarter, the company booked $1.32 billion. Thus Marvell could technically grow revenue to $1.33 billion in fiscal Q2 2024...and still suffer a year-over-year revenue decline.

I doubt this is what investors are hoping for -- and maybe it's not what they thought they read in the earnings report, either.

Likewise with the longer-term forecast. Marvell says its artificial intelligence revenue will double this year. Well and good. But Marvell's not a huge player in AI just yet, so AI revenues will make up a small part of Marvell's total revenues. Indeed, CEO Murphy admitted that "we are still in the early stages of our AI ramp." As regards total revenues, on average, analysts forecast only $5.48 billion in total revenue for Marvell this year -- and if that happens, it would be a 7.5% decline in revenue for Marvell.

Again -- I'd be shocked if investors were hoping for this result. And I'd be unsurprised to learn that when investors heard Murphy promise doubled revenues for AI, they actually thought they were hearing that total revenues would double.

Which they won't.

Long story short, I believe investors flocking to buy Marvell stock today are making a mistake. The best way to play today's rally in the stock may actually be...to take the money and run.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.