Shares of new artificial intelligence (AI) winners Marvell Technologies (MRVL 0.12%), Credo Technologies (CRDO +5.72%), and Nebius Group (NBIS +11.76%) plunged in March, down 32.9%, 27.2%, and 35%, respectively, according to data from S&P Global Market Intelligence.
Both Marvell and Credo reported earnings early in the month, and both actually reported fairly good results. However, the problem was that all three of these AI stocks rallied in a big way in 2024, and came into the month with high valuations. Therefore, any imperfections were amplified, as uneasiness over potential tariffs and the threat they pose to AI capital spending increased through the month.
NASDAQ: MRVL
Key Data Points
These new AI darlings deliver, but investor expectations were sky-high
Marvell had perhaps the most interesting earnings release of these stocks during March. Revenue rose a solid 27% year over year, and adjusted non-GAAP (generally accepted accounting principles) EPS rose 30.4% to $0.60. Both figures came in ahead of analyst expectations.
Marvell's strong numbers were mainly due to its custom ASIC revenue, where the company provides semiconductor IP to major cloud companies that make custom AI accelerators. That segment has skyrocketed over the past two years, and management also projected very strong growth for this year as well.
However, when management was asked about a competitor potentially vying for Marvell's main customer Amazon, CEO Matt Murphy reiterated that Marvell saw strong growth in Amazon revenue this year and next, but wouldn't comment on whether Amazon was working with another company on another custom ASIC, or "XPU." So while the current picture looks good for Marvell, that uncertainty really slammed the stock, given that Marvell's valuation had ballooned to over 81 times adjusted earnings at its January highs.
Credo Technology was also a recent highflier heading into its earnings release in early March. Credo produces IP that goes into AI chiplets, but the company's main growth driver has been its active electrical cables (AECs), which connect data center switches more efficiently, and in a smaller form-factor, than many competing technologies.
Even though the stock had begun correcting in February, shares still weren't cheap entering the month. Prior to its March 4 earnings report, the stock still traded at around 20 times sales.
Credo actually blew away analyst expectations, with revenue up a whopping 154.4% and adjusted EPS rallying 525%, and the stock rallied immediately in the aftermath. However, the jump was short-lived, as tariff and economic fears soon intensified, putting into question the company's future growth projections. At its lofty multiple, there was plenty of room for Credo to fall.
Image source: Getty Images.
Nebius, meanwhile, used to be known as Yandex, essentially the "Google" of Russia, the country's leading search engine, along with other technology assets. The stock had stopped trading on the Nasdaq when Russia invaded Ukraine in 2022, but after Yandex divested its Russian assets, the stock began trading once again on the Nasdaq in August 2024, and is now headquartered in Amsterdam. Renamed Nebius, the company is now using its data center expertise to build an AI-focused "neocloud," akin to CoreWeave.
The company has raised cash from divestitures and a funding round late last year, and has just begun to scale its business. While the company made just $37.9 million in revenue last quarter, that figure was up 466% over the prior year. While earnings before interest, taxes, depreciation, and amortization (EBITDA) was negative at -$75.5 million, that was actually an improvement over the prior year.
Nebius' valuation is a bit hard to figure, given that the reimagined company is relatively early in its life cycle. It achieved a $90 million annualized revenue run-rate (ARR) last quarter, which actually missed expectations, but management sees that growing to $220 million in just the first quarter, which would be a big inflection.
Another positive? Nebius has $2.45 billion in cash and no debt, about half its current valuation. That's unlike CoreWeave, which has a debt load some investors may find problematic.
However, like the other two, Nebius' valuation, which had rallied to over $10 billion around the time of its late February earnings, was perhaps far too ahead of itself. Thus, when earnings weren't perfect, the stock plunged, along with skepticism about the general economy.
As exciting as AI is, remember valuation
The tech market is dealing with two potential revolutions today: the Trump administration's new tariff policies that threaten to upend existing supply chains from Asia, as well as the ongoing AI revolution. Given that concerns about the former have recently overtaken enthusiasm for the latter, the recent sell-off may be a fantastic buying opportunity.
Just be aware that even companies well-positioned in AI are still be prone to big sell-offs if their valuations get stretched. And while it's a great thing to have a long-term outlook, AI technology investors should be aware of valuation when deciding to take on or add to AI positions.
