Marvell Technology Inc (NASDAQ:MRVL) shares surged as much as 16% on Friday after the chipmaker offered positive commentary and said it expects its AI-related revenue will at least double this year.
Moreover, the company’s first-quarter results showed that non-AI areas are finally seeing some improvements, although elevated inventory levels are still bothering the chipmaker.
How Did Marvell Perform in Q1?
For the first quarter, Marvell posted an adjusted profit of $0.31 per share, slightly ahead of the Street at $0.29. Revenue fell 9% to $1.32 billion, however, still better than the analyst expectations for a 10% decline to $1.3 billion.
For this quarter, Marvell’s revenue outlook implies sales of $1.33 billion at the midpoint, beating the consensus of $1.31 billion. The adjusted earnings per share is seen at $0.32, at the midpoint, just ahead of the Street at $0.30.
“We are expecting revenue growth to accelerate in the second half of this fiscal year, accompanied by gross and operating margin expansion,” said Matt Murphy, Marvell’s President and CEO.
The data center revenue was $436 million in Q1, down 32% and 12% on a year-over-year and quarter-over-quarter basis, respectively. Still, the reported number came in higher than Marvell’s forecast.
“We saw stronger demand for our optical data center interconnect products from expanding AI deployments,” said CEO Murphy.
The storage business has continued to sharply decline, but Marvell said it now expects to see sequential growth in Q2.
The chipmaker expects its non-GAAP gross margin will come in the range of 60-61%, ahead of the 60% reported for the first quarter.
Investors were braced for weaker Q2 guidance given the softness in Carrier, Enterprise, and Storage business units. However, the better-than-feared guidance is likely to calm investor concerns.
Moreover, the company’s management signaled that the bottom is likely in as far as revenue decline is concerned and it expects the second half of the year to be much better, despite still-present weakness in Carrier and Enterprise segments.
Still, Marvell executives added that “few markets remain choppy,” while Wired and Enterprise revenue is expected to be down due to “macroeconomic uncertainty and inventory corrections.”
AI Dominates the Earnings Call
While Marvell’s Q1 results were better than what Street was projecting, it was the AI comments that stoked the flames. Shares surged after the company said in the press release that it expects its AI revenue to “at least double from the prior year and continue to grow rapidly in the coming years.”
“AI has emerged as a key growth driver for Marvell, which we are enabling with our leading network connectivity products and emerging cloud optimized silicon platform,” Murphy said while adding that Marvell is still in the early stages of the AI ramp.
This was enough for institutional investors to rush and buy Marvell shares in after-market hours as the chipmaker likely belongs in the AI basket, which is completely dominated by Nvidia (NASDAQ:NVDA).
On the earnings call, AI was the dominant discussion topic and was mentioned nearly 100 times. Marvell’s AI business was worth around $200 million last year and is now expected to double this year and next.
CEO Murphy started discussing the AI opportunity even before he got to results for each business segment. The Chief Executive pointed to a “significant increase in demand for our 400ZR solution” as enterprises shift their capex priorities.
“In the past, we considered AI to be one of many applications within cloud, but its importance and therefore the opportunity has increased dramatically. Generative AI is rapidly driving new applications and changing the investment priorities for our cloud customers. Today’s AI workloads require truly massive data sets,” Murphy said.
Stunningly, Murphy said that the AI technology refresh rate is happening at 18-24 months, which compares to the 4+ years in standard infrastructure.
Nvidia blew away investor expectations yesterday after saying it expects Q2 revenue to come in at $11 billion, up or down 2%. As analysts were looking for “just” $7.13 billion, the Q2 guidance prompted a race among Wall Street brokers to boost Nvidia estimates and price target numbers. Financial news outlet The Tokenist referred to the AI boom as Nvidia’s ‘iPhone moment’.
Rosenblatt analysts set a new Street-high price target ($600 per share) for Nvidia stock.
“Nvidia’s epic print and guide on the massive inflection of global generative AI is historical on so many levels and consistent with a needed view that there is a secular change in semiconductor growth ahead. We call this the Mother of All Cycles or MOAC,” analysts wrote.
Marvell shares rose 7.6% yesterday on the back of Nvidia’s massive Q2 forecast upside. Nvidia shares closed 24.4% on Thursday after coming close to becoming the first chipmaker with a $1 trillion market cap.
Summary
Marvell shares surged on Friday after the chipmaker delivered better-than-expected Q1 results and offered a solid forecast for the second quarter despite ongoing macroeconomic headwinds. The stock leaped sharply higher following management comments that AI revenues should double this year and next given a “significant” increase in demand.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.
