Mywell Technology Plunges After Earnings; Earnings Beat Expectations Are Not Enough, Wall Street Complains Google Is Too Slow To Bring In Large Orders!
The sell-off was not triggered by weakening fundamentals of Mywell Technology, but by Wall Street's repricing of the timing of revenue from Google's custom chip orders. Several institutions believe this major positive factor has already been fully reflected in previous gains, and management emphasizes that the significant impact of the partnership will only become apparent in fiscal year 2029 or beyond, a timing much later than previously expected, disappointing investors who had hoped the deal would generate faster incremental earnings. Looking at the data itself, Mywell Technology's second-quarter revenue was $2.5 billion, in line with market expectations. Additionally, the company raised its long-term revenue targets: driven by continued growth in its data center business, fiscal year 2027 revenue was raised from about $11.5 billion to about $12 billion, representing a year-over-year increase of about 45%; and fiscal year 2028 revenue was raised from about $16.5 billion to about $18 billion. However, these increases have not satisfied investors.
Morgan Stanley believes that Google's related revenue contribution has basically been reflected in previous guidance, so from a mechanism perspective, although Mywell Technology's guidance was raised, it roughly aligns with the long-term growth trajectory previously indicated by management. In other words, this is a typical case of buying expectations and selling facts. Mywell Technology's stock price has nearly tripled this year. After the news was released, the market included Google's large order in valuation, and the financial report only confirmed the existing logic without providing sufficient catalyst for new growth.
Mywell Technology announced a custom chip cooperation agreement with Google. According to disclosures, the agreement could generate up to $120 billion in revenue by fiscal year 2033 and could make Google one of Mywell Technology's largest shareholders. This should have been a major positive development, but investors' attention quickly shifted to the pace of revenue recognition.
Mywell Technology's CEO explained during the conference call that the company's previously stated revenue target for custom chips through fiscal year 2028 already included some revenue related to Google, and the significant impact of this deal will only become apparent in fiscal year 2029 or beyond. This statement directly undermines short-term expectations.
The custom chip business is progressing well, driven by Amazon and Microsoft projects. However, details on revenue from Google's agreement are limited and have been postponed to analyst day, which is likely to affect the stock price. Nevertheless, Google's project will ramp up in fiscal year 2029 and represents significant upside for the current custom chip revenue target of over $10 billion.
Despite the stock price decline, most institutions have not changed their long-term bullish stance. According to LSEG data, at least five brokerages raised their target prices for Mywell Technology after their earnings reports, with a median target of $275.
Market Insight:
Mywell Technology plans to hold an investor day in early October, during which more details will be provided regarding the Google deal, including revenue ramp-up pace, margin impact, customized chip capacity arrangements, and synergies with other hyperscale clients.
