TD Cowen Downgrades Marvell to Hold, $175 Price Target

TD Cowen analyst Sean O’Loughlin downgraded Marvell (NASDAQ: MRVL) from Buy to Hold with a price target of $175 (from $350).

“Our downgrade is driven primarily by our negative view of the transaction itself in terms of structure and timing, rather than the quality of the asset Marvell is acquiring.

In fact, we believe that (similar to Inphi), Lumentum is likely to be a crown jewel within the broader Marvell portfolio.

However, we struggle with (1) the likely earnings dilution associated with the all-stock transaction; (2) the possibility that this deal is coming at or near the peak of an optical mini-cycle within the broader AI infra build-out; and (3) the argument that to achieve co-design and optimization, the two companies must be a combined entity.

Bottom line, we believe dilution and cyclical concerns are likely to weigh on share performance, offsetting any potential longer-term optimism on what the combined portfolio can bring to connectivity in 2030+.

We see the deal as likely carrying ~MSD (%) EPS dilution in C2028, and the company has said it would be accretive beginning one year following the deal closure, so we believe our analysis is aligned with company commentary.

However, our concern regarding where we are in the optical cycle is linked to the accretion/dilution math as well given Lumentum’s manufacturing model.

As we highlighted in our recent earnings preview (here), we believe bottom-up consensus estimates for optical transceiver shipments in 2027 contemplate a ~ $100B market compared to our ~$47B forecast that is based on accelerator shipments.

If the cycle takes a turn for the worse going into C2028 due to transceiver overbuild, Lumentum’s operating leverage is likely to start working to the downside, worsening the margin and EPS dilution math from Marvell’s point of view.”

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