More than two years into the AI boom, semiconductor companies are grappling with heightened investor expectations, especially when it comes to their earnings reports. Recent results from Marvell Technology exemplify the challenges these firms face; despite achieving revenue forecasts that exceeded average analyst projections, the stock witnessed a staggering 20% drop. The rapid decline marked Marvell’s steepest decline since 2001 after the company released guidance that failed to meet elevated estimates.
High Expectations for Earnings Reports
Investors previously surged into the semiconductor sector, fueling substantial stock price increases. Companies like Marvell had gained 83% in value in 2024, leading to escalating shareholder expectations. Following the disappointing guidance, analysts from Cantor noted that although there was a small beat in earnings, Marvell’s future projections fell well below market expectations.
Other Chipmakers Facing Similar Pressures
This pattern is not unique to Marvell. The leader in AI processors, Nvidia, experienced an 8.5% drop in its stock the day after reporting outstanding earnings and revenue results. Similarly, Advanced Micro Devices (AMD) saw its shares decline more than 6%, despite outperforming expectations, largely due to a shortfall in its data center segment.
Optical supplier Credo Technology had an even more drastic impact; its shares plummeted 14% following its earnings report, coupled with another 10% drop the next day, despite boasting impressive triple-digit revenue growth.
Investors are notably sensitive to these earnings results as demonstrated by the performance of the VanEck Semiconductor ETF, which has declined nearly 6% in the current week after a 7% decrease the previous week. This ETF, driven largely by firms like Nvidia, Taiwan Semiconductor Manufacturing Co., and Broadcom, soared 72% in 2023 but is now showing signs of strain.
Market Dynamics and Challenges
The increasing scrutiny on semiconductor companies reflects the pressure they face as the AI infrastructure expansion continues into its fourth year. Geopolitical factors, such as tariffs initiated during the Trump administration and strict chip export controls, further complicate the market environment for these companies.
Nevertheless, not every player in the semiconductor space is feeling the heat equally. Broadcom, which lost 6% during the regular trading session before its earnings announcement, rebounded impressively, gaining 12% in after-hours trading due to better-than-expected financial results, particularly in its infrastructure and semiconductor revenue.
As chipmakers continue to navigate these turbulent waters filled with high expectations and external challenges, their ability to meet and exceed investor anticipations will be crucial in stabilizing their market positions.
