Marvell's Chip Woes: A Reality Check for AI Hype

Marvell Technology's shares took a hit, dropping over 11% in early trading. Why? The company's forecast for data center demand didn't meet the high hopes investors had. Many had bet big on custom chips that power AI tasks for big cloud companies like Microsoft and Amazon. Lately, the market has been hyped up about AI-focused chipmakers. Nvidia's recent earnings beat expectations, but its data center growth slowed. Broadcom, another competitor, hasn't reported yet. Marvell relies heavily on custom chips, which means its sales can swing wildly based on what its customers need. The CEO, Matthew Murphy, said that data center revenue for the next quarter won't grow much. He mentioned that big cloud companies building infrastructure can cause ups and downs in demand. Analysts from Morgan Stanley noted that while they expected some fluctuations, they were surprised that the full-year revenue for Marvell's chip business kept falling. There's also news that Microsoft might delay its AI chip plans until 2028 or later. This could affect Marvell, as it supplies key parts for those designs. Amazon Web Services, another big customer, has been losing ground to competitors like Microsoft's Azure and Google Cloud. Kinngai Chan, an analyst, pointed out that Marvell is smaller than its rivals. Big customers might choose multiple suppliers, which could hurt Marvell's profits. Despite the buzz around AI, Marvell's shares haven't kept up with its competitors. The company reported $2. 01 billion in revenue for the second quarter, meeting expectations. But its forecast for the next quarter was lower than analysts expected. Marvell's price-to-earnings ratio is significantly lower than Broadcom's, showing that investors are cautious about its growth.