Marvell's Weak Data Center Forecast Triggers AI Investor Dumping of Stock

Marvell Technology's weak data center forecast has prompted investors to dump its stock. The chipmaker's revenue fell short of expectations, and its forecast for the current quarter was lower than anticipated. This has led to a decline in the company's shares, with investors focusing on the decline in demand for its data center products.

Marvell Technology Inc. (MRVL) faced a significant setback as its shares plummeted 12% in after-hours trading following a weaker-than-expected revenue forecast for the third quarter [1]. The company, a key player in the AI chip industry, designs custom chips for AI workloads used by tech giants like Microsoft and Amazon. While Marvell reported second-quarter revenue of $2.01 billion, in line with analysts' estimates, its outlook for the coming quarter was underwhelming.

Marvell's data center segment, its largest business unit, reported a 69% increase in revenue to $1.49 billion for the second quarter, but this fell short of the average estimate of $1.51 billion. CEO Matthew Murphy announced that data center revenue in the third quarter would remain flat sequentially, with a substantial increase expected only in the fourth quarter [1]. This news dampened investor enthusiasm.

The forecast for the October quarter indicated a decline in Marvell's custom ASIC (Application-Specific Integrated Circuits) business, which came as a negative surprise to investors. Kinngai Chan, an analyst at Summit Insights, noted that growth acceleration was expected in this segment due to Marvell's design wins with multiple hyperscale customers [1]. The company attributed the "lumpiness" in its custom ASIC business to normal fluctuations in infrastructure build-outs by large cloud compute providers [1].

Marvell's position in the data center market has been under scrutiny, with its shares falling 30% year-to-date prior to this announcement [1]. The company faces stiff competition in the cloud services sector, where its customer Amazon Web Services (AWS) has been losing ground to Microsoft's Azure and Google Cloud [1]. This competitive landscape adds to the challenges Marvell faces in maintaining its growth trajectory.

Despite the short-term setback, Marvell remains committed to capitalizing on the growing AI market. The company recently completed the $2.5 billion sale of its automotive ethernet business to Infineon Technologies, aligning with its strategy to focus on the "massive AI opportunity" [2]. Murphy emphasized that Marvell's design teams are currently engaged with over 50 new opportunities involving more than 10 customers, underscoring the company's aggressive pivot to AI-focused custom silicon [3].

Marvell's disappointing forecast comes at a time when chipmakers are facing increased investor scrutiny due to high expectations surrounding artificial intelligence [2]. This contrasts with the optimistic outlook presented by Nvidia's CEO Jensen Huang, who dismissed concerns about an end to the AI chip spending boom and projected a multi-trillion-dollar market opportunity over the next five years [1].

For the third quarter, Marvell expects revenue of $2.06 billion (plus or minus 5%), falling short of analysts' average estimate of $2.11 billion [1]. This guidance, coupled with concerns over the custom silicon business, led to a sharp decline in the company's stock price. However, some analysts, like Ethan Feller from Zacks Investment Research, believe that Marvell's long-term growth story remains intact, suggesting that the market may reward investors over the next 12 to 18 months as the company executes its AI strategy [1].

References:
[1] https://theoutpost.ai/news-story/marvell-technology-s-stock-tumbles-on-weak-data-center-forecast-raising-ai-investor-concerns-19676/
[2] https://www.inkl.com/news/marvell-technology-sells-auto-unit-for-2-5-billion-to-go-all-in-on-data-center-business-amid-ai-boom
[3] https://finance.yahoo.com/news/marvell-forecasts-downbeat-quarterly-revenue-201309804.html