When a company reports its latest earnings numbers, the news can have a significant impact on its stock price. When a stock has fallen significantly, it could create an attractive buying opportunity for investors. But it's important to consider the reason for the drop, to ensure you aren't buying a stock that will just keep losing value.

Recently, tech company Marvell Technology (MRVL -1.56%) reported earnings, and its shares crashed afterward. The sell-off has been extreme. On Monday, the stock closed at $65.67 -- down 27% from just a few days earlier, when it reported earnings. And by then, shares of Marvell were already tumbling amid concerns related to tariffs and trade wars. All in all, heading into trading this past Tuesday, the stock had fallen by more than 40% in the preceding month alone.

Does the hefty decline make this a good time to buy Marvell stock, or should investors avoid what could be the start of a much larger free fall?

Sales growth accelerates, but guidance raises concerns

Marvell's performance in its most recent quarter certainly wasn't bad. The company reported revenue of $1.82 billion for the period ended Feb. 1, which was an increase of 27% year over year. And that is a faster rate of growth than what it has posted in previous periods.

MRVL Operating Revenue (Quarterly YoY Growth) data by YCharts

The company has benefited from the boom in artificial intelligence (AI) as it makes custom chips for businesses. But spending on AI has been under the microscope this year since Chinese AI company DeepSeek unveiled a chatbot which it says cost a fraction of what ChatGPT has cost OpenAI to build, raising flags about whether so much spending on AI is truly necessary.

As a result, simply posting strong earnings numbers may not be enough of a reason to give a stock a boost. If investors are expecting a significant slowdown ahead, that could lead to a sell-off.

Indeed, it's the guidance that has been the concern for Marvell investors. The company forecasts that for the current quarter, its revenue will be around $1.88 billion, only slightly higher than the $1.82 billion it reported this past quarter, and it's also lower than the $2 billion that some analysts were expecting.

The stock isn't near its 52-week low -- yet

Marvell's steep decline in the early part of the year has sent it to levels it hasn't been at in months. At Monday's close, however, the stock would still need to drop another 19% to hit its 52-week low of $53.19. After the drop in value, the stock is now trading at a forward price-to-earnings (P/E) multiple of less than 24.

Forward P/E numbers are, however, based on analyst estimates and can change depending on the outlook for not just the company but the overall economy. And these days, that's a big question mark as tariffs and trade wars are a significant concern and investors are worried there could be a recession on the horizon. The average stock in the Technology Select Sector SPDR Fund trades at a forward P/E of 25. Marvell is a bit cheaper, but the discount isn't a significant one.

And while Marvell did post a profit of $200 million this past quarter, it has struggled with profitability in the past; over the last 12 months, it incurred a net loss of $885 million on revenue totaling $5.8 billion. Not only could costs rise due to trade wars, but Marvell's top line could also feel the effects -- China is a key market for the company, and that's a country the U.S. has targeted with additional tariffs this year.

Can Marvell stock turn things around?

There are multiple concerns weighing on Marvell and other AI stocks this year, including hefty valuations. Marvell is certainly much cheaper than it was just a few months ago, but the risk is that things can still get worse in the months ahead, depending on how significant the trade wars, specifically the one between the U.S. and China, proves to be.

If you're willing to be patient and are OK with taking on some risk, Marvell could be a good buy right now. The business has scaled efficiently and become profitable, and although a trade war could derail that progress, I wouldn't expect that to be a long-term problem; government policies can change drastically from one administration to the next.

A big rally may not be coming soon for Marvell, unless the threat of a trade war goes away, but if you're willing to hang on for several years, this can still make for a good AI stock to buy and hold.