Marvell Shares Slide as Data Centre Outlook Misses Expectations
Shares of Marvell Technology dropped by 11.3% in premarket trading on Friday. This decline came after the chipmaker’s forecast for data centre demand fell short of investor expectations. Many had hoped for strong growth in Marvell’s custom chips, which support AI workloads for major cloud firms like Microsoft and Amazon.
Cooling Sentiment in AI Chip Market
Investor optimism around AI-focused chipmakers has been high, but recent trends suggest the market may be cooling. While Nvidia’s recent results exceeded forecasts, its data centre growth slowed, and its share price dropped after the report. Broadcom, another major player in the sector, has yet to release its earnings.
Marvell’s business depends heavily on custom application-specific integrated circuits (ASICs). These products make the company more vulnerable to changes in customer demand and inventory levels.
On a post-earnings call, CEO Matthew Murphy stated that data centre revenue for the third quarter would remain flat compared to the previous quarter. However, he did not provide further details about the reason behind this weakness.
Murphy noted that revenue fluctuations are common when large cloud companies expand their infrastructure. Still, some analysts expressed concern over the broader trend. “We aren’t surprised at lumpiness, but we are surprised that the ASIC full-year revenue continues to fall,” analysts at Morgan Stanley remarked.
Pressure from Delays and Rival Growth
A recent media report suggested that Microsoft may delay the launch of its in-house AI chip until 2028 or later. This delay could impact Marvell’s future revenue since it supplies essential components for Microsoft’s AI chip designs.
Amazon Web Services, another major client for Marvell, is also under pressure. Competitors like Microsoft Azure and Google Cloud have grown more quickly than AWS in recent quarters, potentially affecting Marvell’s sales.
Kinngai Chan, an analyst at Summit Insights, pointed out that Marvell’s smaller scale, compared to larger rivals, could be a disadvantage. He added that big clients now prefer using multiple suppliers, a strategy that might hurt Marvell’s profit margins.
Forecast Disappoints Despite Meeting Q2 Expectations
Marvell’s second-quarter revenue totalled $2.01 billion, in line with Wall Street expectations. However, its third-quarter forecast of $2.06 billion, plus or minus 5%, fell short of the $2.11 billion average estimate from analysts.
Marvell’s 12-month forward price-to-earnings ratio stands at 23.95, compared to Broadcom’s 39.03. This gap reflects investor caution about Marvell’s growth prospects.
with inputs from Reuters
