It should be good times for Marvell (MRVL). With a semiconductor shortage still hitting parts of the industry, making semiconductors should be like printing money. However, the news didn’t prove as good as conditions suggested it might have. Marvell released its second-quarter earnings results earlier today, and the company went down in Thursday’s after-hours trading. Marvell posted $0.57 per share in earnings, which proved the narrowest of wins against estimates calling for $0.56 per MRVL share.
Revenue figures came out as similarly narrow wins. The company posted $1.517 billion in revenue, with the consensus looking for $1.5 billion.
The last 12 months for Marvell shares started out great, but didn’t stay that way. Last year at this time, Marvell shares were just under $63 per share. December proved a great month for Marvell as it spent much of the month near its highs of $93 per share.
With the new year, however, came the beginning of a slide that lasted all the way to June. A recovery followed, and now Marvell shares are up around $53.
Things should be a lot better for Marvell, especially with a chip shortage still in play. However, signs emerged suggesting that the shortage may be stumbling toward an end. Worse, macroeconomic conditions are poised to deal some demand destruction to chips in general.
It’s not looking good for Marvell going forward, nor is it looking good for the whole chip sector. Thus, I’m putting Marvell on neutral for now. Things aren’t looking great, but there’s still a chance to win.
Investor Sentiment is Looking Up for MRVL Stock
Investor sentiment, in Marvell’s case, is looking up. Analysts are clearly on board, but insider trading at Marvell is also gaining ground. While there’s a dearth of informative transactions of late, there has been more than enough information from the uninformative transactions to draw some conclusion. Insider trading is clearly buy-weighted in recent months, which is a turnaround from the pattern shown in the last 12 months.
In the last three months, buy transactions lead sell transactions by 22 to 14. Going back to the last 12 months, meanwhile, produces a ratio of 56 buy to 61 sell transactions. Sell transactions were on the rise when the company’s stock price was higher, specifically back in December when the company’s 52-week high was on hand.
Distressing Shift in the Chip Industry Could Impact MRVL Stock
One of the biggest things that has me unnerved about Marvell doesn’t actually have anything to do with Marvell. Rather, it has something to do with Nvidia, which posted its own earnings report just recently. It was a disaster. Not only did Nvidia (NVDA) lower its expectations once previously, it also disappointment against those lowered figures. That’s bad news par excellence right there, and it’s worth getting concerned about the whole sector, especially when you take a closer look at Marvell’s own numbers.
Nvidia had to drop its projections and it still came in lagging. Marvell, meanwhile, beat expectations, but by such a narrow margin that it’s almost invisible. One small slip would have been enough to prompt disappointing results for Marvell, too.
Granted, Marvell is being upbeat about the whole thing. CEO and president Matt Murphy noted that the company is pushing to “…expand our leadership in data infrastructure.” Okay, great. Murphy also expects supply constraints to start easing as well.
In perhaps the biggest push of CEO-speak, Murphy noted that the company was looking for a boost from “…strong secular growth trends and significant expected upcoming revenue contributions…” from a set of Marvell products.
However, that’s actually part of the problem. Those supply constraints were helping Marvell out. The semiconductor shortage that has plagued most of the economy gave the whole chip sector that same kind of boost. The World Economic Forum back in February projected a boost of 9% in 2021 against the 5% in 2019.
If the supply constraints start easing on Marvell, they’ll start easing on everyone else, too, and at least some of that supply constraint easing can be traced back to demand destruction prompted by a souring global economy. Basically, not only will Marvell lose its edge, but it will also lose that edge going into economic conditions when it most needs an edge.
Chip demand is likely to take a hit going forward here, and on a certain level, we’ve started to see that hit already. Marvell’s narrow win and Nvidia’s disappointment against already-lowered expectations suggest weakness already emerging.
Is Marvell Stock a Buy or Sell?
Turning to Wall Street, Marvell has a Strong Buy consensus rating. That’s based on 18 Buys and two Holds assigned in the past three months. The average Marvell stock price target of $75.95 implies 37.87% upside potential. Analyst price targets range from a low of $55 per share to a high of $125 per share.
Conclusion: MRVL Stock is a Tempting Target, but Think Twice
There’s no doubt that Marvell is tempting. A quick look at Marvell’s share price will catch an eye or two. After all, it’s trading below its lowest price targets and that’s a tempting entry point for anybody. Plus, Marvell’s chip line is fairly diverse, which should help ensure demand for at least something at any given time. Moreover, the chip shortage is still at least somewhat in place, though there are clear signs it’s easing. That easing, however, will pull some of the profitability out of Marvell’s lineup.
Worse yet, we’re also going into an economic downturn. We’re already there, on at least some points. No matter whether you believe this is an official recession or not, it sure feels like one.
Thus, things look pretty good for Marvell right now. However, since it only managed a win by the skin of its teeth this time, and conditions look like they’re about to turn south for the whole sector, it might be a good idea to keep your distance for now. There’s a chance Marvell can win, but a little better chance it won’t. That’s why I’m neutral on Marvell.
