Shares of networking chips designer Marvell Technology (NASDAQ: MRVL) jumped 5.6% in the afternoon session after The Federal Reserve maintained its key interest rate for the third consecutive time, holding it within the targeted range of 5.25%-5.5%. Additionally, committee members signaled a more dovish stance for 2024, anticipating at least three quarter-point rate cuts, roughly aligning with market expectations but more accommodative than Fed officials' previous statements. The market is focusing on this change. The Fed Chair added that "Inflation has eased from its highs, and this has come without a significant increase in unemployment."
In line with the Fed's assessment, on December 12, 2023, the Bureau of Labor reported a slight decline in inflation, attributed to lower gasoline prices and a general easing of price pressures in the U.S. The consumer price index (CPI) for November showed a 3.1% increase from the previous year (in line with market expectations), down from 3.2% in October, indicating ongoing disinflationary pressures. As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.
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What is the market telling us:
Marvell Technology's shares are very volatile and over the last year have had 20 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 13 days ago, when the stock dropped 5.4% on the news that the company reported third quarter results and provided revenue guidance for the next quarter that missed Wall Street's expectations. The consumer and automobile/industrial segments underperformed and weighed down the company's overall outlook. Management called out "inventory corrections and macroeconomic-induced demand headwinds in many end markets." For the broader semiconductor universe, we've noticed softening trends in the consumer and automobile/industrial end markets this quarter.
On the other hand, EPS outperformed Wall Street's estimates, driven by healthy demand for AI solutions in its data center segment. In fact, the company expects its data center revenue growth to accelerate from 20% to 30% next quarter. Overall, this was a mediocre quarter for Marvell Technology.
Marvell Technology is up 58.7% since the beginning of the year, but at $57.06 per share it is still trading 13.5% below its 52-week high of $65.93 from July 2023. Investors who bought $1,000 worth of Marvell Technology's shares 5 years ago would now be looking at an investment worth $3,650.
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