Shares of Marvell Technology (MRVL +0.13%) fell as much as 10.1% on Monday, before recovering to a 7.5% decline as of 12:46 p.m. EDT.
The company reported better-than-expected third-quarter earnings last week, leading to a rise; however, one analyst threw cold water on the recent jump today, raising the perennial question of whether Marvell has lost a custom XPU contract for Amazon's (AMZN 0.89%) next-gen Trainium chips.
NASDAQ: MRVL
Key Data Points
Benchmark downgrades Marvell based on Trainium 3 and 4 fears
Today, sell-side research analysts at Benchmark downgraded Marvell to a "Hold" rating from "Buy," while withdrawing a specific price target.
The reason for the downgrade, according to analyst Cody Acree, is that Benchmark has gained a, "high degree of conviction" that Marvell has lost the custom XPU business for Amazon's upcoming Trainium 3 and 4 chipsets to Asian rival AIchip.
Supplying custom XPU parts for hyperscalers' self-designed AI chips has been a significant factor in Marvell's stock rise in recent years. And Marvell's custom XPU business has been dominated by Amazon as the company's largest customer by far.
Marvell doesn't break out its XPU or "XPU attach" business separately, but rather groups it with its Data Center segment, which also includes Marvell's data center networking technology.
On the recent third-quarter earnings release, the Data Center segment grew a solid 38%, and Marvell gave even more good news. Management said it expects 25% Data Center growth in the next fiscal year, then an acceleration to 40% growth the following year. That outlook was above expectations, and the forecast for an acceleration in fiscal 2028 actually prompted other analysts to raise their price targets on Marvell. For instance, while Benchmark downgraded the stock, JP Morgan & Chase analyst Harlan Sur actually raised his price target on Marvell from $120 to $130 today, based on that guidance.
Still, Benchmark's Acree believes that growth will come from either the older Trainium 2 chips or perhaps from network-attach chiplets and other components, not the next-gen Trainium 4 custom XPU.
Image source: Getty Images.
Does it matter?
To a certain extent, as long as Marvell can hit the numbers it projected, it doesn't much matter if the company loses a certain product contract. However, the loss of future XPU chip modules could signify something more worrying regarding growth over the long-term, or indicate something about the Marvell's general competitiveness.
The hand-wringing over the Amazon contract has been an overhang on Marvell's stock this year, and there appears to be little willingness on the part of either Marvell or Amazon to publicly clarify details of their contract negotiations. So unfortunately, Marvell investors will likely have to tolerate this rumor mill for some time to come.
