BofA no longer recommends buying Marvell stock. What's wrong with this chipmaker?

Bank of America has downgraded its recommendation on shares of chipmaker Marvell Technology after the company's forecast for the current quarter failed to meet investors' high expectations. The reason was irregular shipments of AI chips to large cloud customers, according to Reuters. As a result, BofA no longer has confidence that demand for Marvell's AI product line will grow. The company's stock plunged more than 18% in trading on Friday, August 29.

Following semiconductor maker Marvell Technology's second-quarter report, in which the company reported record revenue but gave a weaker-than-expected outlook for the current quarter, Bank of America analyst Vivek Arya downgraded its stock. He no longer recommends buying these securities and instead suggests holding them in a portfolio. The analyst also lowered his target price on Marvell shares from $90 to $78. The new target still suggests that they have upside potential - up 24% relative to the closing level of trading on August 29.

Quotes Marvell after the report, published on Thursday evening, fell on Friday by 18.6% - to $62.7. In total, the company has lost 43% of its value since the beginning of the year.

Marvell's report could also affect the quotes of competitors: Broadcom shares fell by 3.6% in trading on Friday, and Nvidia - by 3.3%.

In a Friday note cited by CNBC, a BofA analyst wrote that the bank has less confidence in the growth prospects of the chipmaker's securities following the release of its quarterly report, which came in within expectations. "Unlike previous conference calls, we did not hear the same level of confidence or transparency in Ma's outlook for growth in the AI segment in the short to medium term," Arya warned.

According to him, there is now increased uncertainty on two fronts at once. The launch of production of Maia chips for Microsoft may be shifted from the second half of fiscal year 2027 to 2028. Also, the extent of the company's participation in Amazon's project to create next-generation AI chips for AWS on the 3-nanometer process is still unclear.

"As a result, we are downgrading our forecast for data center product sales growth in calendar year 2026 from the previous 23-25% annualized growth rate to mid-teens (typically implied range of 14-16% - Oninvest)," the analyst added.

An increasing share of Marvell's revenue comes from custom silicon chip designs for cloud companies like Amazon and Microsoft, which are building their own solutions to reduce reliance on Nvidia, Reuters writes.

At the same time, Marvell is not to blame for the postponement of the launch of production of new chips for Microsoft - it was the technology giant itself that pushed back the deadline. And some analysts believe that fears about large orders are exaggerated.

"The delay could play in Marvell's favor by increasing Microsoft's dependence on the company," Morningstar analyst William Kerwin told Reuters. - The main question on investors' minds is whether Marvell will be able to retain orders from AWS and Microsoft. We're more of an optimist here."

Summit Insights analyst Kingai Chan, who set a neutral rating for Marvell's stock, pointed out that the company does not yet have scale comparable to the major players, and hyperscalers are increasingly choosing not to depend on a single supplier, which could put pressure on the chipmaker's margins.

In total, according to MarketWatch, of the 43 analysts tracking Marvell stock, most recommend buying: 32 rate Buy and 3 Overweight. Another eight advise holding these securities in a portfolio (Hold). The company has no "sell" ratings.

Marvell's revenue in the second quarter of fiscal 2026, which ended in July, rose 58% from a year ago to a record $2.01 billion - exactly as analysts surveyed by LSEG had expected, CNBC writes. According to CEO Matt Murphy, the sales growth was driven in part by strong demand from the AI segment: for the company's custom chips and optoelectronic solutions.

Adjusted earnings per share amounted to $0.67, beating Wall Street's forecast by 1 cent. And instead of a net loss of $193.3 mln in the second quarter of last fiscal year, the company reported a net profit of $194.8 mln.

During a conference call with investors, Murphy said that third-quarter revenue would be almost flat to around $2.06 billion, with analysts expecting a forecast of $2.11 billion, Reuters notes. This alerted Wall Street, as data centers are a key area reflecting demand for AI infrastructure equipment, the agency explains.

However, as Marvell's CEO noted, the company expects growth in the custom segment in the fourth quarter - indicating a possible increase in shipments near the end of the year.

This article was AI-translated and verified by a human editor