Marvell Technology Soars on Strong AI Chip Demand
Record High Stock Price
Marvell Technology’s stock surged 12% in pre-market trading on Wednesday, following a stellar forecast for the fourth quarter. The chipmaker’s shares have been on a tear this year, rising nearly 60% as investors bet big on the growing demand for advanced chips that power sophisticated generative AI models.
Custom AI Chips Drive Growth
The Santa Clara, California-based company’s custom artificial intelligence chips have been in high demand from businesses looking to develop cutting-edge AI models. This has led to a significant increase in revenue, with Marvell forecasting $1.80 billion in fourth-quarter revenue, beating analysts’ estimates of $1.65 billion.
Reducing Dependence on Nvidia
Big Tech companies have been seeking to reduce their reliance on Nvidia’s supply-constrained semiconductors, which has benefited companies like Marvell. Marvell helps large cloud computing companies design custom-built processors, a business that has grown rapidly since its inception in 2020.
Growing Market for Custom Chips
According to Marvell’s Chief Operations Officer, Chris Koopmans, the total market for custom chips could reach $45 billion by 2028, with Marvell and Broadcom expected to be the main beneficiaries. Research firm 650 Group estimates that the data center custom chip market will grow to $10 billion this year.
Data Center Segment Sees Significant Growth
Marvell’s data center segment saw revenue double to $1.10 billion in the third quarter, compared to the same period last year. Total quarterly revenue was $1.52 billion, beating estimates of $1.46 billion.
AI Chip Sales Expected to Soar
The company expects its AI chip sales to hit $2.5 billion by fiscal 2026, with revenue derived from custom AI chips alone expected to be between $2.5 billion and $3 billion in 2025. Optical equipment is expected to add another $1.5 billion to $2 billion to AI revenue.
Challenges in Other End-Markets
While the AI chip business grows, customers in other end-markets, such as wireless carriers, have been driving down chip inventory after excessive buying during the pandemic. Marvell’s enterprise networking segment posted a 44% fall in revenue, and its carrier infrastructure revenue slumped 73%.
Adjusted Gross Margin Forecast
The company forecast an adjusted gross margin of 60% for the fourth quarter, compared to estimates of 61%. Its custom chips typically carry lower margins than its off-the-shelf products. Marvell recorded adjusted earnings of 43 cents per share in the third quarter, beating estimates of 41 cents.
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