TipRanks Smart Growth Portfolio #24: Chip Shot
Dear Investors,
Welcome to the 24th edition of the Smart Growth Portfolio and Newsletter.
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Portfolio News
❖ Monday.com (MNDY) plunged nearly 30% after reporting Q2 2025 earnings on August 11 – a sharp reaction that stands in stark contrast to the company’s solid performance and raised full-year guidance. Revenue grew 27% YoY to $299 million, and non-GAAP EPS hit $1.09, both topping estimates. Enterprise traction remained strong, with record growth in $100K+ accounts and meaningful adoption of its new CRM and AI-driven tools like monday magic and monday sidekick.
The rout was mainly caused by MNDY’s “smaller than usual” earnings beat, while guidance was only modestly raised, and a temporary Google algorithm change caused some softness in the SMB segment – issues that wouldn’t normally trigger a 30% collapse. But with investors on edge over the idea that AI could compress margins and disrupt software business models, Monday got swept up in a broader anti-software wave. As Bloomberg reported, software stocks globally were hammered by fears that generative AI tools could speed up app development and cannibalize traditional SaaS spending.
We think the drop is disproportionate. Monday’s fundamentals remain strong, its product is widely used, and the fears appear more narrative-driven than fact-based. Several analysts agree. Despite reducing their price targets, firms including Morgan Stanley, Goldman Sachs, Citi, and Piper Sandler kept their “Buy” ratings – and the new average price target still implies more than 50% upside.
In our view, this is a high-quality company unfairly caught in the current software derating cycle. The fears about AI displacing MNDY’s value proposition seem exaggerated, and the valuation now reflects far more downside than the fundamentals justify. We’re watching for sentiment stabilization, but MNDY’s long-term setup remains compelling.
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❖ Arlo Technologies (ARLO) came under pressure yesterday after Bloomberg reported that Apple is plotting an AI comeback, planning to release an “ambitious slate of new devices,” including robots, a lifelike version of Siri, a smart speaker with a display, and home-security cameras. The iPhone maker reportedly sees a big growth opportunity in home security, outlining that the new cameras will anchor an Apple security system that can automate household functions. If Apple can overcome these past limitations, it could shift competitive dynamics in home security. But for now, the announcement is more likely to create headline risk for Arlo than any near-term threat to its position.
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❖ MKS Inc. (MKSI) surged over 9% in the past week after stellar quarterly results triggered a wave of price target increases. Analysts at Citi, Deutsche Bank, Morgan Stanley, BofA, and TD Cowen reiterated their “Buy” ratings while raising PTs – while Wells Fargo maintained a “Hold” but also increased its target.
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❖ Micron (MU) bucked the market yesterday and capped a 13% gain over the past week after raising its guidance for the August-end quarter. The company now expects stronger revenue, gross margin, and EPS, citing improved pricing, especially in DRAM, and solid execution. Micron highlighted continued tailwinds in legacy DRAM and growing adoption of high-bandwidth memory (HBM), which commands up to 5x the ASP of standard DRAM. Mizuho and JPMorgan raised their price targets following the update, while several other analysts reiterated bullish views. Erste Group resumed coverage with a “Buy” rating.
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Under Review
❖ We are keeping Clearwater Analytics (CWAN) under review, maintaining a “hold-with-vigilance” strategy.
This decision follows its Q2 2025 earnings and sharp post-report selloff. Despite strong operational results, the stock has now fallen over 30% from its February highs – more than 10% of that on earnings day alone – indicating technical breakdowns and market skepticism are outweighing fundamentals for now.
Revenue rose 70.4% year-over-year to $181.9 million, beating estimates by $7.8 million. Non-GAAP EPS of $0.12 matched expectations, while adjusted EBITDA rose 74% to $58.3 million. Annualized recurring revenue climbed 83% to $783.5 million, and gross revenue retention held steady at 98% – all signs of healthy customer growth and integration execution. Non-GAAP gross margin remains solid at 77.4%. The company also reaffirmed a strong Q3 outlook, projecting 75-76% YoY revenue growth.
However, the GAAP net loss widened to $24.2 million due to acquisition-related costs, and free cash flow growth slowed to just 4% YoY. Total debt ballooned to $878 million as Clearwater integrated Enfusion, Beacon, and BISTRO – a capital-intensive strategy that is beginning to test investor patience, particularly in a high-rate environment. Sentiment may have been further dented by the absence of an upward revision to full-year margin or FCF guidance despite strong top-line beats.
Meanwhile, CWAN’s business momentum remains positive, with several high-profile customer wins and partnerships – notably with Bloomberg, which will integrate Clearwater’s accounting platform into its enterprise investment solutions – tilting our sentiment toward continuing to hold the stock in the Portfolio. The latest results validate its acquisition and integration strategy, delivering growth and margin expansion even amid complexity. Its infrastructure platform, expanding institutional partnerships, and strong retention metrics preserve upside potential.
Analysts remain bullish overall – Oppenheimer reiterated a Buy with a $36 target, and Loop Capital maintained its Buy with a reduced $31 target – but some are tempering expectations around synergy timelines. The bullish case still hinges on Clearwater’s ability to scale acquired assets from 13% to 20% revenue growth, improve margins, and convert debt-fueled expansion into durable SaaS profitability. While these deals strengthen Clearwater’s position as a front-to-back investment operations platform, the path to earnings leverage is under closer scrutiny.
The bullish camp expanded on August 12, with Goldman Sachs upgrading CWAN from “Hold” to “Buy” with an unchanged price target of $27. The firm acknowledges that investor skepticism around Clearwater’s ability to integrate multiple acquired businesses – including Enfusion – has weighed heavily on the stock. However, Goldman argues that if you strip out the value of Enfusion from Clearwater’s enterprise value, the core business is trading at just ~31x free cash flow – unusually low for a platform growing at over 20% annually. That disconnect, they believe, reflects temporary integration concerns rather than any deterioration in the underlying business.
For now, we remain cautious but not bearish. Clearwater is executing well on integration and client expansion, but with the market in wait-and-see mode, we prefer to stay on the sidelines. The stock remains under review until we see renewed traction on cash flow, debt reduction, or a reacceleration in valuation momentum.
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This Week’s Top Growth Pick: Marvell (MRVL)
Marvell Technology, Inc. is a semiconductor company specializing in data infrastructure solutions for computing, networking, storage, and connectivity. Its products power a broad range of applications, from cloud data centers and enterprise networks to automotive and carrier infrastructure. Leveraging expertise in custom silicon, high-speed interfaces, and advanced process technologies, Marvell delivers system-on-chip and chiplet-based architectures optimized for performance, efficiency, and scalability. The company’s portfolio spans processors, Ethernet switches, PHYs, storage controllers, and optical interconnects, enabling customers to address demanding workloads in AI, 5G, and high-performance computing. By integrating hardware, software, and platform-level innovation, Marvell supports the next generation of intelligent, connected systems, partnering with industry leaders to accelerate deployment of emerging technologies and meet the growing demands of global data traffic.
Source: Marvell Technologies, Inc., Corporate Overview, May 2025
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The Fabric of AI
Marvell Technology’s origins date back to 1995, but the company’s transformation over the past several years has been especially significant. The shift began with a series of acquisitions that steadily broadened its capabilities and deepened its role in the data infrastructure market.
In 2018, Marvell acquired Cavium, adding processor lines based on ARM architecture along with security engines and networking assets, expanding its reach well beyond its storage roots. This was followed in April 2021 by the purchase of Inphi – a leader in high-speed optical connectivity, silicon photonics, and coherent interconnects – positioning Marvell at the forefront of cloud-scale data movement. Later that year, the company completed the acquisition of Innovium, adding advanced Ethernet switching technology optimized for cloud and edge data centers and cementing its growing relevance to hyperscale operators.
By 2024, the strategic direction was clear – Marvell was leaning heavily into AI and cloud-driven growth. That year, it entered a multi-year collaboration with AWS, supplying AI and data center connectivity silicon alongside cloud-based electronic design automation tools. Soon after, Marvell announced it would deliver NVLink Fusion-enabled custom silicon platforms in partnership with NVIDIA, giving hyperscalers greater performance and integration flexibility for AI workloads. Over this period, MRVL confirmed active custom silicon programs with all four major hyperscalers – Microsoft, Google, Amazon, and Meta – covering XPUs, CPUs, CXL controllers, and network-interface solutions tailored for large-scale AI and cloud deployments.
In April 2025, Marvell sold its Automotive Ethernet business, Brightlane, to Infineon in a $2.5 billion cash deal. This divestiture marked a deliberate move away from non-core markets, sharpening its focus on high-growth data infrastructure and custom silicon opportunities. The company’s engineering strategy, built around a modular ASIC and system-on-chip platform that integrates compute, networking, storage, optics, advanced packaging, and SerDes, has given it the ability to deliver high-performance, application-specific solutions that go beyond what standard parts can offer.
Through these acquisitions, targeted divestiture, and deepened partnerships with the largest cloud providers, Marvell has evolved from a broadly diversified semiconductor vendor into a highly focused infrastructure partner. It retains the technical breadth to serve multiple markets, but its resources and innovation are now concentrated on capturing a leading share of the AI and cloud data center buildout that is reshaping the semiconductor landscape.
Source: Marvell Technologies, Inc., Custom AI Investor Event, June 17, 2025
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Silicon Tailwinds
Marvell designs semiconductors for high-performance data infrastructure across cloud, carrier, enterprise, automotive, and select consumer end markets. The center of gravity is Data Center – about 76% of revenue in Q1 FY2026 – where Marvell supplies custom AI accelerators, high-speed optics, and networking silicon for hyperscalers.
Custom AI silicon accounts for roughly half of Data Center sales, making it the single largest product category inside the company’s largest segment and a primary driver of recent growth. These multi-year, program-based designs for hyperscalers carry high switching costs and provide strong revenue visibility.
Carrier Infrastructure – around 7% of revenue – provides transport, routing, and access silicon to telecom operators. The Enterprise Networking segment (9%) focuses on Ethernet switching and connectivity for campus and edge networks. The Automotive and Industrial segment accounts for approximately 5%, delivering in-vehicle and factory Ethernet solutions, while Consumer is a small and declining portion.
Marvell’s technology advantage lies in its ability to combine custom and merchant silicon across multiple process nodes and package types, optimizing for bandwidth, latency, and power efficiency at massive scale. This positions it to address a total addressable market (TAM) expected to exceed $100 billion by the late 2020s, with growth driven by AI infrastructure buildout, cloud data center expansion, carrier network upgrades, and automotive Ethernet adoption. According to Dell’Oro research, total data center capex by hyperscalers (including the newcomers like xAI and Oracle) is expected to reach $1 trillion by 2028, supporting Marvell’s TAM outlook.
Source: Marvell Technologies, Inc., Custom AI Investor Event, June 17, 2025
Within this market, AI-related infrastructure alone is projected to represent tens of billions of dollars and is growing at a high double-digit rate, giving the company substantial runway for share gains. MRVL’s established presence across all four major hyperscalers, combined with leadership in high-speed optical and networking silicon, supports its potential to capture a disproportionate share of incremental AI and cloud infrastructure investment.
The One Big Beautiful Bill (OBBB) fiscal package, enacted in July 2025, adds further tailwinds. Provisions for immediate R&D expensing and extended 100% bonus depreciation improve Marvell’s cash flow profile, enabling faster reinvestment into custom silicon programs, optical interconnect development, and advanced packaging. These policy benefits enhance its R&D leverage, accelerating time-to-market for new designs and strengthening competitive positioning in AI-centric markets.
Marvell’s business is concentrated, scalable, and aligned with long-term infrastructure demand. Its exposure to custom silicon and optics provides operating leverage as hyperscaler programs grow, while adjacent verticals like automotive and carrier offer incremental upside. With AI and cloud deployments still early in their buildout cycles, the company’s prospects remain closely tied to structural, rather than cyclical, trends.
Source: Marvell Technologies, Inc., Custom AI Investor Event, June 17, 2025
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Cache Flow
MRVL kicked off fiscal 2026 with a record-setting first quarter, posting revenue of $1.895 billion – up 63% year-over-year and 4% sequentially – as soaring demand for custom AI silicon and high-speed optics in the Data Center segment continued to reshape the business. Data Center revenue surged 76% YoY to $1.44 billion, now accounting for over three-quarters of total revenue and firmly establishing itself as Marvell’s growth engine.
Other segments remained pressured by end-market softness. Automotive & Industrial declined 25% YoY to $76 million amid a cyclical pause in auto silicon demand. Consumer segment revenue fell 46% to $63 million, reflecting an ongoing strategic de-prioritization. Enterprise Networking was flat at $166 million, while Carrier Infrastructure dipped 3% to $128 million as telco customers remained cautious on spend. The skew underscores just how pivotal Marvell’s pivot to AI-centric data infrastructure has become – a bet that now drives the company’s top line despite weakness in legacy verticals.
Earnings came in strong across the board. Non-GAAP EPS surged to $0.62 – up 158% YoY – and beat the midpoint of company guidance as well as analyst consensus. Gross margin expanded to 59.8%, while operating margin hit 34.2% – both at the higher end of the guided range. GAAP net loss narrowed to $200.4 million, continuing the company’s march toward profitability as scale improves and high-margin custom programs ramp.
Cash flow from operations reached $431.6 million, and free cash flow totaled $311.5 million. Marvell ended the quarter with $768 million in cash – providing ample flexibility even before accounting for the pending $2.5 billion sale of its automotive Ethernet unit to Infineon.
Guidance for FQ2 2026 remains strong. Marvell expects revenue to land around $2.0 billion at midpoint – up 57% YoY – and EPS in the $0.62-0.72 range on a non-GAAP basis, with gross margin between 59% and 60%. The midpoint of both metrics aligns with Street consensus ($2.01 billion revenue, $0.67 EPS), suggesting Marvell is set to meet already-high expectations if execution holds. Taking into account its track record of five straight quarters of beating both revenue and EPS estimates, it’s safe to bet that this outperformance should hold.
Layered on top is the newly enacted OBBB fiscal package, which introduces favorable tax treatment for innovation-heavy businesses like MRVL. With provisions such as full expensing of R&D and extended bonus depreciation, the bill materially improves near-term cash conversion. This strengthens Marvell’s ability to reinvest in its highest-return growth areas – including custom silicon, optics, and advanced packaging – while supporting margin expansion and boosting financial agility as AI infrastructure demand continues to surge.
Taken together, Marvell’s Q1 performance and Q2 outlook underscore its transition from cyclical chipmaker to embedded AI infrastructure player – one with growing visibility, expanding margins, and a strengthening balance sheet.
Source: Marvell Technologies, Inc., FQ1 2026 Financial and Business Results, May 29, 2025
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The Bit Payoff
Marvell’s stock has broadly followed the trends seen in iShares Semiconductor ETF (SOXX), although its steep surge in the back half of 2024 through January 2025 market high was outstanding even with the strong performance of the chip stocks in the background.
MRVL’s custom silicon leadership, strong earnings beats, and a healthy dose of AI-driven hype propelled the stock to outsized gains – which gave way to a drop nearly double that of SOXX’s during the January – April 2025 “tariff tantrum” sell-off. As a result, while Marvell’s stock is up by nearly 60% from its April 4 trough, its 12-month gain is “only” about 22%.
Analysts see additional notable upside, rating MRVL a “Strong Buy” – with the average price target implying upside of more than 17%. Analyst sentiment for Marvell has turned notably bullish since its last earnings report, with several brokerages – including BofA, Morgan Stanley, and others – raising their price targets amid renewed optimism about the company’s AI prospects and robust data center demand. Marvell’s next report in two weeks may provide another strong catalyst.
Meanwhile, valuation remains reasonable, providing an attractive entry point before this possible re-rating, if FQ2 results show a beat as we expect. The company comes at or near the bottom of the valuation scale for U.S. based peers like AMD, Broadcom, and Monolithic Power in terms of trailing twelve month (TTM) and forward Non-GAAP P/E and EV/EBITDA ratios and TTM Price/Sales.
At the same time, Marvell’s forward Non-GAAP PEG ratio of 0.80 is both low – much lower than peers and half the sector average – and unusual for a high-growth semiconductor stock, especially in the AI build-out cycle. This could either mean that the Street expects MRVL’s growth to slow – which is not likely given high ratings and PT hikes – or that the market hasn’t fully priced in the durability of its custom AI silicon ramp, hyperscaler relationships, and mid-term TAM expansion, clearly pointing to a classic GARP (Growth At a Reasonable Price) setup.
Unusually for a growth stock, Marvell pays dividends, having done so consistently and steadily over the past 13 years. Although the payout has been small, amounting to just 0.3% yield, it is still a signal of the management’s confidence in the company’s business model and ongoing profitability. While dividend payments were introduced based on institutional shareholder interest and as a diversification in returning cash besides buybacks, the low yield signals prioritization of reinvestment in growth initiatives and custom silicon innovation.
Marvell’s share repurchases are a much more significant channel of shareholder capital return. In March 2024, Marvell’s board approved a $3 billion increase to its existing stock repurchase program 9adding to $300 million left of the previous plan at the time), representing the largest repurchase authorization in Marvell’s history. In fiscal 2025, Marvell repurchased approximately $933 million of its common stock, adding about $340 million in FQ1 2026. At quarter-end, the remaining capacity stood at ~$2 billion.
All told, MRVL offers a rare combination – embedded AI demand, widening margins, financial flexibility, and significant upside – making it an earnings stock worth owning before the next wave of AI rollouts, not just watching from the sidelines.
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To Sum It All Up
Marvell is emerging as one of the clearest semiconductor beneficiaries of the AI and cloud infrastructure build-out. Its deep ties to hyperscalers, expanding custom silicon programs, and leadership in high-speed connectivity give it durable demand visibility and pricing power. A business mix increasingly skewed toward long-cycle data center projects provides resilience against short-term market swings, while disciplined capital allocation and margin expansion support compounding earnings potential. With growth drivers aligned to structural technology shifts rather than cyclical spikes, and a valuation that still reflects skepticism about the durability of its AI ramp, Marvell represents a high-quality growth opportunity where execution – not hype – will determine the pace of re-rating.
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Smart Growth Portfolio
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Disclaimer
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