Marvell Shares Fall 16.43% as Investors Reassess AI Data Center Risks
Key Facts
Marvell Technology shares fell 16.43% in the November 5 session, closing at $133.55 after declining 13.4% at 2:42 p.m. ET, according to a report by The Motley Fool. The drop came on a day of broad selling in technology and artificial intelligence stocks, as investors reassessed the impact of the U.S. midterm elections on data center construction plans. The Nasdaq fell 5.5% and the Philadelphia Semiconductor Index fell 12% in the same session, according to Reuters. Marvell was among the hardest-hit stocks, falling about 17%, the news agency estimated. Data centers are a pivotal market for the company, making the prospect of slower expansion a source of concern for investors.
Sentiment shifted after initial gains following the Democrats' wins. On November 4, major technology stocks rose as investors bet that potential restrictions on building new centers could curb excess capacity and ease capital spending pressures. But in the next session, investors reconsidered their initial positive reaction to the Democratic victory, according to Reuters. The move coincided with a widening political debate over data centers' effects on local communities and electricity costs. Texas Governor-elect Gina Hinojosa said she intends to halt construction of new data centers, according to Reuters. Democrats in Congress have also called for legislation to protect consumers from rising electricity costs associated with the centers and require independent testing of AI systems.
The election results showed that concern about construction restrictions extends to states hosting major projects. AP reported that Democrats won gubernatorial offices in Texas, Ohio, Georgia, Nevada and Iowa, states it described as having dense concentrations of data centers. Of 34 winning candidates in decided gubernatorial races, 32 support regulation or stronger restrictions on data centers, while 12 support a ban or temporary moratorium, according to AP. These positions do not mean a general halt has taken effect; pledges vary by candidate and state. The agency reported that Ohio's governor-elect pledged to block a project that does not meet certain standards, while Reuters reported Hinojosa's pledge in Texas to halt new construction.
The scale of investment tied to AI infrastructure helps explain why stocks are sensitive to these developments. Reuters estimated that major technology companies plan to spend more than $740 billion in 2026, compared with about $400 billion the previous year, to expand infrastructure. During the 2026 election season, campaigns spent more than $380 million on television ads mentioning data centers, and Democrats' spending on the issue exceeded Republicans' by more than three times, according to AP. An analysis by Redbud Consulting, cited by AP, also found that voters approved restrictions on data centers in 44 of 45 local elections with completed counts. These figures suggest the debate has moved beyond state races to local decisions about projects and their locations.
A large share of planned capacity is concentrated in states that could face restrictions. Reuters, citing Goldman Sachs, said states where Democrats could restrict data center development account for about 45% of planned U.S. capacity, while Texas alone accounts for about 25%. UBS analysts estimated, according to the news agency, that potential pauses could slow the pace of construction through 2028, with about 30% of expected additions that year at risk of being affected. These remain estimates of potential risks, not announcements that specific projects have been canceled. In its quarterly report, Marvell warned that delays, cutbacks or geographic restrictions affecting data center projects could defer demand for its products and hurt revenue growth and operating results. The company added that community opposition could lead to organized protests, zoning rejections, lawsuits and legislative action at the state and municipal levels.
Marvell's financial results show how closely its growth is tied to the sector facing these risks. The company reported record revenue of $2.739 billion in the second quarter of its fiscal 2027, up 37% year over year, and said data center revenue grew 46%. In August, it had forecast revenue of about $3.150 billion for the third quarter of fiscal 2027, plus or minus 5%. In a separate development before the sell-off, Marvell announced an all-stock agreement to acquire Lumentum on November 2. Under the agreement, Lumentum shareholders will receive 4.500 Marvell shares for each share, implying an enterprise value of $115 billion for the deal. Marvell said the deal could expand the combined company's addressable market to $550 billion and deliver annual cost savings of more than $1 billion; it is expected to close in the first half of 2028, subject to shareholder and regulatory approvals.