Marvell Tech's AI Chip Dreams Dim as Data Center Demand Disappoints

Marvell Technology faced a significant pre-market drop of 11.3% in share value following a concerning outlook for data center demand that didn't meet high investor expectations. The excitement around AI-driven custom chips, particularly for cloud-service giants like Microsoft and Amazon, has been tempered by recent trend reversals, highlighting potential market cooling.

CEO Matthew Murphy emphasized that the volatile demand linked to custom application-specific integrated circuits is affecting the company's performance. Notably, third-quarter data center revenues are expected to remain flat sequentially, though the exact causes remain unclear. Analysts from Morgan Stanley describe the fluctuations as typical but expressed surprise over the persistent annual revenue drop in Marvell's ASIC division.

Adding to the challenge, a report suggests that Microsoft's AI chip release could be delayed, affecting Marvell's order fulfillment. Additionally, Marvell finds itself under competitive pressure as it faces aggressive growth from competitors like Google's Cloud and Azure from Microsoft. Analyst Kinngai Chan highlights Marvell's relatively smaller scale and multivendor sourcing by customers as factors that could hurt its profitability. Despite reporting a $2.01 billion revenue for the second quarter, Marvell's future earnings forecast lagged behind market expectations, instigating investor caution reflected by its lower price-to-earnings ratio compared to Broadcom.