Should You Buy Marvell Technology Stock After Its Post-Earnings Dip?

When a company releases its latest earnings report, the information can greatly affect its stock price. A significant drop in a stock might present an appealing opportunity for investors to buy. However, it's crucial to examine the reasons behind the decline to avoid purchasing a stock that might continue to decrease in value.

Recently, the technology corporation Marvell Technology (MRVL) announced its earnings, resulting in a steep decline in its share price. The drop was quite dramatic; on Monday, the stock closed at $65.67, reflecting a 27% fall from just a few days prior when the earnings were reported. Prior to the earnings announcement, Marvell's shares had already been under pressure due to concerns about tariffs and ongoing trade disputes. Overall, leading up to last Tuesday's trading, the stock had plummeted over 40% in the last month.

This raises the question: does this sharp decline make it a good time to purchase Marvell stock, or should investors steer clear of what could be the beginning of a larger downturn?

Sales Growth Accelerates, But Guidance Raises Concerns

In its latest quarter, Marvell's performance was relatively strong. The company reported earnings of $1.82 billion for the period ending February 1, showcasing a year-over-year revenue increase of 27%. This growth rate is faster than what the company has previously recorded.

Moreover, Marvell has gained from the surge in artificial intelligence (AI) as it provides tailored chips for various businesses. However, this year, investment in AI has come under scrutiny. For instance, a Chinese company introduced a chatbot that reportedly cost far less to develop than OpenAI's ChatGPT, raising questions about the overall necessity of such spending on AI.

Thus, merely reporting solid earnings may not suffice to boost a stock's value. If investors anticipate a significant slowdown in growth, it might lead to further selling pressure.

Indeed, guidance has been a key concern for investors in Marvell. The company has forecasted revenue for the current quarter to be around $1.88 billion, which is only slightly up from the last quarter's $1.82 billion and falls short of the $2 billion that many analysts were expecting.

The Stock Isn't Near Its 52-Week Low — Yet

Marvell's sharp decline at the beginning of the year has brought its stock down to levels not seen in several months. Nevertheless, as of Monday's close, the stock would still need to fall an additional 19% to reach its 52-week low of $53.19. Despite the sizeable decline, it is now trading at a forward price-to-earnings (P/E) ratio of less than 24.

However, these forward P/E ratios depend on analyst forecasts and can change based on not only the company’s situation but the overall economic environment. Currently, this remains uncertain as trade wars and tariffs present ongoing challenges, leading investors to worry about a possible recession. The average stock in the Technology Select Sector SPDR Fund has a forward P/E of 25, making Marvell slightly cheaper, but the difference is not substantial.

In addition to this, while Marvell reported a profit of $200 million for the most recent quarter, the company has struggled with profitability in the past. Over the last year, Marvell experienced a net loss of $885 million on revenues of $5.8 billion. Increasing costs due to trade disputes could impact Marvell further, particularly as China is a critical market for the company and is facing additional U.S. tariffs this year.

Can Marvell Stock Turn Things Around?

There are numerous concerns affecting Marvell and other AI-related stocks this year, particularly associated with high valuations. While Marvell is certainly trading at a much lower price than it was just months ago, there’s a risk that things may worsen in the coming months, especially if trade wars, specifically that between the U.S. and China, escalate.

If you’re willing to take on some risk and exercise patience, now could be a good opportunity to invest in Marvell. The company has effectively streamlined its operations and has become profitable. Although the trade dispute could pose challenges, it is not likely to remain a long-term issue as government policies can shift dramatically with different administrations.

While a significant recovery for Marvell may not be imminent unless the trade conflict is resolved, if you are prepared to hold onto the stock for several years, it could still represent a worthwhile investment in the AI space.

Note: The author has no stakes in any of the stocks mentioned. The information here is provided purely for informational purposes.

stocks, investment, Marvell