Why Marvell Technology Rallied in September

Shares of Marvell Technology (NASDAQ: MRVL) rallied 33.7% in the month of September, according to data from S&P Global Market Intelligence.

Marvell came off a bad month of August, when the stock fell 21.8% following its second quarter earnings report, on which management gave softer-than-expected quarterly guidance due to what it said was "lumpiness" in its custom AI XPU business.

However, the stock bounced back in September, as investors appeared to conclude the long-term outlook for AI, including Marvell's XPU and networking opportunity, remained bright.

Image source: Getty Images.

On top of that, Marvell management expressed confidence by greatly increasing the company's share repurchase authorization, while several executives also bought Marvell's stock on the open market.

$5 billion of share repurchases and millions in insider buys

Marvell began to recover early in September as other technology companies involved in artificial intelligence, such as Oracle and Micron, gave highly encouraging long-term outlooks.

Later in the month, Marvell management expressed confidence in shares and put real dollars behind that conviction. On Sept. 24, the company announced a new $5 billion share repurchase program, including a $1 billion accelerated share repurchase program, in which $1 billion will be bought immediately with help of a leading financial institution.

The new program builds on the existing $2 billion program Marvell had as of the end of the second quarter. Management noted it had also repurchased $300 million of stock quarter to date before the Sept. 24 announcement.

CEO Matt Murphy said in the release, "This ASR reflects our conviction in the business and the intrinsic value of our stock, as we drive sustained revenue and cash flow growth."

Then the following day, four of Marvell's top executives bought stock with their own money on the open market. Murphy bought 13,600 shares, Chief Operating Officer Chris Koopmans bought 6,800 shares, Chief Financial Officer Willem Meintjes bought 3,400 shares, and Data Center Group President Sandeep Bharathi bought 3,400 shares. The share price was in the high $70 range at the time, making these total insider purchases range from $265,000 to a little over $1 million for Murphy.

Marvell is a relative value among AI stocks

After its September run, Marvell now trades around 30 times this year's adjusted (non-GAAP) earnings estimates, which is not cheap by conventional stock standards, but is a relative value among AI stocks today.

That being said, there's a bit more uncertainty in Marvell's business than for other AI names. The company has less-exciting telecom and enterprise communications segments, and its custom XPU business, which helps hyperscalers design their own custom AI chips, hasn't been as consistent as that of rival Broadcom (NASDAQ: AVGO).

Billy Duberstein and/or his clients have positions in Broadcom and Micron Technology. The Motley Fool has positions in and recommends Oracle. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy.