Analysts see AI boosting Marvell, but warn of other headwinds for the chip stock

Published Fri, Aug 25 20236:14 AM EDTUpdated Fri, Aug 25 202310:07 AM EDT

Wall Street sees a clear opportunity for Marvell Technology to benefit from the artificial intelligence craze. But analysts are wondering if it can be enough to counteract challenges elsewhere. The semi stock retreated more than 4% in premarket trading Friday despite slightly exceeding Wall Street expectations in its quarterly report delivered Thursday. Marvell posted 33 cents in earnings per share, excluding items, on $1.34 billion in revenue, while analysts surveyed by Refinitiv had forecast 32 cents per share and $1.33 billion. Marvell's release comes a day after AI darling Nvidia 's expectation-crushing report. "The company appears to be a tale of two cities with the AI and the cloud piece working very well while other pieces are slowing or facing multi-quarter headwinds," said Piper Sandler analyst Harsh Kumar, who reiterated his overweight rating and $75 price target. "That said, there is enough strength in the data center business to effectively be able to grow the entire company in the mid-teens range on a revenue basis in FY25." Goldman Sachs analyst Toshiya Hari said a recovery in the company's data center business can help drive accelerated earnings growth in 2024. Still, Hari trimmed revenue expectations for 2023 and 2024, citing weakness in enterprise networking. Constrained upside ahead? Despite the premarket pullback, the stock is still up more than 50% on the year. But some on Wall Street are now wondering if there's less upside ahead than they previously anticipated. Bank of America analyst Vivek Arya lowered his price target by $5 to $75 but kept his buy rating. Arya similarly noted that the company's AI growth has been somewhat offset by weakness in traditional markets. Arya also said the stock could feel pressure in the short term if there's uncertainty, macro headwinds or if expectations prove to be too optimistic. Raymond James' Srini Pajjuri, who reiterated an outperform rating, said a pullback creates an "excellent opportunity" as there's the potential for secular growth tied to AI and eventual cyclical recovery elsewhere. Not everyone has changed their tune. JPMorgan's Harlan Sur, who reaffirmed his overweight rating and established a price target of $70 after the report, said AI orders were one reason why a sustained recovery could be seen in the second half of this year into 2024. And UBS analyst Timothy Arcuri reiterated that Marvell is a favorite AI play with a $75 price target. MRVL .SPX,.IXIC YTD mountain Marvell vs. the S & P 500 and Nasdaq Composite this year But Morgan Stanley analyst Joseph Moore said trouble in those more traditional markets has restricted his ability to raise expectations for the overall business in the second half of this year, even as its AI offerings do well. Moore kept his equal-weight rating while pulling his price target back by $3 to $65. Though he said a post-earnings sell-off seemed surprising, the stock's high valuation can make investors feel like there's "little room for error." "The company's direct exposure to the NVIDIA ramp with optical remains clear, and while we feel less certain around the optionality of custom silicon, MRVL certainly belongs in the AI beneficiaries category," he said. "But headwinds in enterprise networking, 5G infrastructure (with a notable decline in January qtr), and storage largely offset that." — CNBC's Michael Bloom contributed to this report.