Chipmaker Marvell’s weak data center forecast prompts AI investors to dump its stock

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By Juby Babu

(Reuters) -Chipmaker Marvell Technology forecast quarterly revenue below market estimates on Thursday, disappointing investors who are accustomed to strong results from artificial intelligence-facing firms and sending its shares down 12% after hours.

Shares of the company — which designs custom chips to power AI workloads for big tech companies including Microsoft and Amazon — have fallen 30% this year, as investors have doubted Marvell’s position in the data center market.

With investments in AI surging, chipmakers are facing tougher investor scrutiny as Wall Street’s lofty expectations leave little room for disappointment. 

The company reported a smaller-than expected rise in second-quarter revenue in its data-center business — up 69% to $1.49 billion versus an average estimate of $1.51 billion, according to LSEG data.

Marvell’s CEO Matthew Murphy said on a post-earnings call that data center revenue in the third quarter will be flat on a sequential basis, but that the fourth quarter would be substantially stronger.

The bleak October-quarter outlook calls for a decline in Marvell’s custom ASIC business, which was a negative surprise for investors, said Kinngai Chan, analyst at Summit Insights, referring to application-specific integrated circuits, or chips designed for specific tasks.

“We were expecting growth to accelerate for its custom ASIC business as Marvell has design wins with multiple hyperscale customers. Instead, management talks about ‘lumpiness’ in its custom ASIC business,” he said.

Marvell did not say what caused the weakness in the business, but Murphy said “lumpiness” was normal when large cloud compute providers build out infrastructure.

A media report said recently that Microsoft had delayed the release of some of its upcoming in-house AI chips until 2028 or later, impacting Marvell as it is set to design some components for the chips. As well, Marvell’s other large customer Amazon’s cloud business AWS has been losing ground to Microsoft’s Azure and Alphabet’s Google Cloud.

AWS reported a 17.5% increase in revenue in the second quarter. By comparison, sales for Microsoft’s Azure rose 39% and Google Cloud gained 32%.

Stifel analyst Tore Svanberg said, though, that Marvell was well positioned to capitalize on the ASIC market, “but it will take 12-18 months before that business becomes more diversified to deliver more consistent beats-and-raises.”   

Chip giant Nvidia’s CEO Jensen Huang on Wednesday dismissed concerns about an end to a spending boom on AI chips and said opportunities will expand into a multi-trillion-dollar market over the next five years.

Marvell expects third-quarter revenue of $2.06 billion, plus or minus 5%, compared with analysts’ average estimate of $2.11 billion.

For the second quarter ended August 2, Marvell posted revenue of $2.01 billion, in line with analysts’ estimates.

The company completed the $2.5 billion sale of its automotive ethernet business to German chipmaker Infineon Technologies earlier in August.

(Reporting by Juby Babu in Mexico City; Editing by Alan Barona and Sayantani Ghosh)