Why Marvell Technology Stock Fell 37% in July

Shares of the semiconductor company Marvell Technology (NASDAQ: MRVL) fell hard in July as investors sold off many artificial intelligence and semiconductor stocks amid growing skepticism that the massive wave of AI spending will be worth the costs.

Marvell's stock fell 37% last month, according to data from S&P Global Market Intelligence, as investors seem to have reset their expectations for the company.

Image source: The Motley Fool.

AI spending skepticism is spreading

It wasn't all that long ago that tech companies could spend whatever they wanted on artificial intelligence, and shareholders were more than happy to see them make big bets on AI.

But that's changing. Consider that Alphabet recently said it's raising its capital expenditures to $205 billion and that they will likely "increase significantly" next year. Investors punished the stock on that news.

And this sentiment is trickling down to semiconductor companies, too. Semiconductor stocks fell hard last month as investors worried that AI companies may eventually pull back on their spending if profits don't follow soon. Semiconductor companies lost a cumulative $1 trillion in market value due to the July sell-off.

Marvell and its peers have benefited as tech giants ramped up their spending to build out massive AI data centers. But not everyone is convinced that the return on investment will be worth it.

Marvell shareholders also responded last month to Erste Group's downgrade of Marvell stock from a "buy" to a "hold" rating, as the company's shares had outpaced near-term growth expectations.

When taken together, Marvell shareholders lost a lot of confidence in the company last month, despite there being no company-specific news to trigger the drop.

Marvell stock still looks pricey

Sometimes, when a huge share price drop occurs in just one month, a stock will rebound as investors realize the stock has been pushed down too far. But the problem for Marvell stock is that even after the recent decline, its shares are still expensive.

Marvell's price-to-earning (P/E) ratio is about 64 right now, which is far above the tech sector average P/E ratio of just 34.

Investors will gain a clearer perspective on how Marvell is doing when the company reports its second-quarter fiscal 2027 results on Aug. 27. Management's guidance calls for revenue to increase 35% to $2.7 billion and non-GAAP earnings to rise 38% to $0.93 per share, both at the midpoint.

But with Marvell stock still pricey and investors increasingly skeptical of the payoff for AI companies, Marvell's shares are likely to remain volatile for a while.

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Marvell Technology. The Motley Fool has a disclosure policy.