Marvell Technology's (MRVL 3.17%) red-hot stock market rally came to a grinding halt following the release of the company's fiscal 2024 fourth-quarter results (for the three months ended Feb. 3, 2024) as its guidance turned out to be significantly below Wall Street's expectations.
Shares of the company, whose chips are deployed in multiple end markets ranging from data centers and vehicles to routers and networking appliances, have been retreating since the report came out on March 7. That isn't surprising as Marvell's results weren't impressive enough for a stock that had shot up over 100% in the preceding year.
Let's see what went wrong with Marvell last quarter, and check if the stock's dip is a buying opportunity thanks to its growing artificial intelligence (AI) business.
Marvell Technology's guidance paints a grim picture
Marvell reported fiscal Q4 revenue of $1.43 billion, a marginal increase of just 1% from the year-ago period. The company's non-GAAP earnings were also flat on a year-over-year basis at $0.46 per share. Consensus estimates were modeling $0.46 per share in earnings on $1.42 billion in revenue, so the company barely scraped past expectations.
The guidance, however, fell short. Management expects to earn $0.23 per share in the first quarter of fiscal 2025 on revenue of $1.15 billion at the midpoint. Given that the company delivered $0.31 per share in earnings on $1.32 billion in revenue in the same quarter last year, the guidance means both Marvell's top and bottom lines are on track to shrink in the current quarter.
For a stock trading at 13.3 times sales just before the latest earnings report -- far higher than its five-year average multiple of 8.7 -- Marvell needed to deliver much better guidance. However, weakness in almost all of Marvell's end markets aside from the data center business are weighing on the company's results. Last quarter, Marvell's revenue from the enterprise networking business was down 28% year over year, while carrier infrastructure fell 38%. The consumer and automotive/industrial businesses were down 20% and 17%, respectively.
These four segments produced 46% of Marvell's total revenue during the period. In the current quarter, Marvell is forecasting a 50% sequential decline in the carrier business, along with a 40% drop in enterprise networking. However, the company believes its carrier, enterprise, and consumer markets could return to growth in the second half of the fiscal year.
Artificial intelligence has given the data center business a big boost
Marvell's data center business was the lone bright spot last quarter. It produced $765 million of revenue, up 54% year over year while accounting for 54% of the company's top line. Management pointed out on the latest earnings conference call that AI played a central role in driving this growth.
In the words of CEO Matt Murphy:
AI was a key driver of our data center growth in fiscal 2024, contributing over 10% of total company revenue, well above our initial forecast. This was a substantial increase from approximately 3% in the prior year. Our momentum accelerated throughout the fiscal year with AI revenue well over $200 million in the fourth quarter, driven mostly from optics.
Looking ahead, Marvell expects its AI revenue to keep growing as it is set to begin shipments of its AI chips to more cloud customers. Demand for Marvell's custom AI chips should ideally drive healthy long-term growth for the company. That's because the market for application-specific integrated circuits (ASICs) for AI workloads in the cloud is forecasted to grow at an annual pace of 20% in the long run, according to JPMorgan.
With Marvell controlling a 12% share of this market, the company's AI business should only keep getting better. That's why investors would do well to keep this semiconductor stock on their watch lists and consider buying it on the dips. A recovery in its other segments, along with the impressive growth the company is enjoying in data centers, could send this chip stock soaring in the long run.
