Marvell sinks as weak data center outlook stokes custom AI chip worries
FILE PHOTO: Semiconductor chips are seen on a circuit board of a computer in this illustration picture taken February 25, 2022. REUTERS/Florence Lo/Illustration/File Photo
Shares of Marvell Technology slumped nearly 18 per cent on Friday, as the chipmaker's data center demand outlook fell short of lofty expectations owing to irregular sales of its custom AI chips to cloud giants.
Investor expectations for chipmakers are elevated after their valuations have sky-rocketed due to Wall Street's picks-and-shovels AI trade, but market bellwether Nvidia's latest earnings cast doubt over demand from cloud providers.
Marvell CEO Matt Murphy said on a post-earnings call on Thursday that data center revenue in the third quarter would be sequentially flat, worrying investors and analysts about growth in its key segment that reflects demand for hardware used in AI data centers.
The networking chipmaker's revenue is increasingly driven by its custom chip business which services cloud providers such as Amazon.com and Microsoft who are developing in-house capabilities to reduce their dependence on Nvidia.
A recent media report said Microsoft had delayed its in-house AI chip rollout to 2028 or later.
Murphy said "lumpiness" was normal when large cloud providers build infrastructure, referring to Marvell's exposure to uneven product development schedules and spending.
Summit Insights analyst Kinngai Chan, who has a "hold" rating on the stock, said, "Marvell lacks scale relative to larger peers and expects hyperscale customers to pursue a multi-vendor sourcing strategy, which could weigh on margins."
Marvell competes against larger rival Broadcom for a piece of cloud providers' custom chip and networking businesses. Broadcom is yet to report July quarter results.
Marvell is set to lose close to $12 billion in market value if losses hold. It has a 12-month forward price-to-earnings ratio of 23.95, compared with Broadcom's 39.03, according to data compiled by LSEG.
But Marvell expects its custom business to be stronger in the fourth quarter, Murphy said, implying an uptick later in the year as custom chip orders increase again.
