(Reuters) -Shares of Marvell Technology slumped 11.3% in premarket trading on Friday as the chipmaker’s data center demand outlook fell short of lofty expectations after investors bet big on custom chips that power AI workloads for cloud giants such as Microsoft and Amazon.
Investor expectations for AI-focused chipmakers have been elevated, but recent results have shown signs of a cooling market. Nvidia’s latest earnings beat forecasts, but its data center growth slowed and shares fell post-report. Peer Broadcom has yet to report.
Marvell’s reliance on so-called custom application-specific integrated circuits exposes it to customer inventory-led swings in demand.
CEO Matthew Murphy said on a post-earnings call on Thursday that data center revenue in the third quarter will be flat on a sequential basis, but did not elaborate on the source of the weakness.
Murphy said “lumpiness” was normal when large cloud compute providers build out infrastructure.
“We aren’t surprised at lumpiness, but we are surprised that the ASIC (chips business) full year (revenue) continues to fall,” Morgan Stanley analysts said.
A recent media report said that Microsoft had delayed its in-house AI chip rollout to 2028 or later, potentially impacting Marvell’s pipeline, as it supplies key components for those designs.
Amazon Web Services, another major customer for Marvell, has been ceding ground to faster-growing rivals, with Microsoft’s Azure and Alphabet’s Google Cloud outpacing AWS in recent quarters.
Kinngai Chan, an analyst at Summit Insights, said that Marvell lacks scale relative to bigger peers and that large customers pursuing a multivendor sourcing strategy could weigh on its margins.
Marvell reported second-quarter revenue of $2.01 billion, matching Wall Street expectations, but its third-quarter forecast of $2.06 billion, plus or minus 5%, came in below analysts’ average estimate of $2.11 billion.
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, a gap that reflects investor caution around its growth prospects.
(Reporting by Rashika Singh in Bengaluru; Editing by Mrigank Dhaniwala)
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