Marvell Technology shares fell 15% in premarket trading after projecting flat data center revenue for Q3, raising concerns about AI chip demand.

The US-based company supplies networking and custom chips to clients such as Amazon and Microsoft as they expand AI hardware.

CEO Matt Murphy said fluctuations in cloud spending are normal, citing uneven product development schedules.

Analyst Kinngai Chan noted Marvell’s smaller scale versus rivals like Broadcom could pressure margins as cloud firms diversify suppliers.

Marvell’s market value could drop by nearly US$10 billion, though Murphy expects stronger custom chip demand in Q4.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Custom chip revenue creates inherent volatility for smaller players

Marvell’s “lumpiness” problem reflects a structural challenge in the custom AI chip market that particularly affects smaller suppliers.

Unlike standardized chips sold to many customers, custom chips involve long development cycles with cloud giants who place large, irregular orders based on their infrastructure buildout schedules1.

This creates feast-or-famine revenue patterns, as evidenced by Marvell’s flat sequential growth guidance despite operating in a booming AI market.

Microsoft’s delay of its in-house AI chip rollout to 2028 or later demonstrates how customer timeline shifts can significantly impact suppliers who depend on major design wins1.

The custom chip market is projected to grow from 25% of AI accelerators by 2028, but this growth comes with unpredictable order timing that makes financial planning challenging for suppliers2.

2️⃣ Scale becomes critical competitive advantage in custom chip market

Marvell’s struggles highlight how scale disadvantages intensify in the custom chip business compared to traditional semiconductor markets.

While Marvell trades at a modest 23.95 forward P/E ratio, competitor Broadcom commands 39.03 times earnings and recently achieved significant growth in custom AI chip revenue13.