Shares of some of the hottest companies in artificial intelligence recently faced substantial declines, with Marvell Technologies, Credo Technologies, and Nebius Group seeing downturns of 32.9%, 27.2%, and 35%, respectively, in March. This data comes from S&P Global Market Intelligence.
Marvell and Credo kicked off the month by releasing their earnings, which, surprisingly, hit the mark in terms of positive results. However, all three companies had experienced significant surges in stock prices throughout 2024. As a result, any minor drawback was magnified amidst growing worries about potential tariffs and their potential impact on AI-related investments.
These rising stars in AI certainly delivered, but investors had their expectations set through the roof. Marvell’s earnings announcement in March was especially noteworthy. They posted a robust 27% increase in revenue compared to the previous year, and their adjusted non-GAAP EPS surged 30.4% to reach $0.60, surpassing analyst predictions.
A large part of Marvell’s success stemmed from its custom ASIC revenue, supporting major cloud providers with semiconductor IP to create custom AI accelerators. This segment has seen impressive growth over the past few years, and management forecasts a similar trajectory moving forward.
However, when the question arose about a competitor potentially targeting Marvell’s key client, Amazon, CEO Matt Murphy confirmed strong growth in Amazon’s revenue this year and the next. He declined to comment on whether Amazon might partner with another firm for additional custom ASICs or “XPUs.” This uncertainty, combined with Marvell’s lofty valuation peaking over 81 times adjusted earnings in January, triggered a sharp drop in stock prices.
Credo Technology was another contender that had been soaring before its earnings release in March. Known for its IP used in AI chiplets and its leading role in active electrical cables (AECs)—which outperform other technologies by offering efficient data center switch connections—Credo was on a roll.
Entering the month, Credo’s stock seemed overpriced, trading around 20 times its sales prior to its earnings release on March 4. Despite these lofty valuations, Credo exceeded analyst forecasts, showcasing a revenue surge of 154.4% and a stunning 525% rise in adjusted EPS. The stock initially rallied following the earnings beat, but this was short-lived as fears of tariffs and a shaky economic outlook dampened prospects for its future growth, causing the stock to fall back down.
Meanwhile, Nebius, formerly known as Yandex—the leading search engine provider often referred to as the “Google” of Russia—had its own journey to navigate. After halting its Nasdaq trading due to geopolitical tensions arising from Russia’s actions in Ukraine, the company re-emerged in August 2024 with revised operations, now based in Amsterdam. Rebranded as Nebius, it is leveraging its data center expertise to construct a new AI-centered “neocloud,” similar to what CoreWeave offers.
Following divestitures and a funding round late last year, Nebius began ramping up operations. Last quarter, their revenue hit $37.9 million, a 466% increase from the same period last year. However, EBITDA was still negative at -$75.5 million, albeit an improvement from the prior year.
Nebius’s valuation poses challenges since the company is still in its early stages. The last quarter saw an annualized revenue run-rate of $90 million, which fell short of expectations. Management aims to push that figure to $220 million in the first quarter, hoping for a major turning point.
On the bright side, Nebius boasts $2.45 billion in cash with no debt, contrasting with CoreWeave’s substantial debt, which might deter some investors. Nevertheless, with Nebius’s valuation soaring beyond $10 billion around its late-February earnings, the drop in performance and broader economic skepticism dragged down the stock.
The allure of AI is undeniable, but it’s crucial to consider valuation. The current tech sector is navigating two potential disruptions: new tariff strategies introduced during the Trump administration that threaten to disrupt established Asian supply chains, and the unfolding AI revolution. Lately, concerns over tariffs have overshadowed the excitement surrounding AI advancements, potentially making these market dips a solid opportunity for savvy investors.
Nonetheless, it’s important to remember that even AI frontrunners aren’t immune to significant sell-offs if their valuations become unsustainably high. While a long-term perspective is valuable, those investing in AI technology should weigh the importance of valuation when making decisions about new positions or adding to existing ones.
