US Chip Giant Suddenly Hit by "Air Raid".
Affected by weaker-than-expected performance guidance, US AI custom chip giant—Marvell Technology—faced fierce selling, plummeting nearly 19% at one point during overnight US trading. The financial report showed that the company expects Q3 revenue to be $2.06 billion, below analysts' consensus expectations.
Meanwhile, the US chip sector plunged across the board. By the close, the Philadelphia Semiconductor Index fell over 3%. Nvidia, Broadcom, TSMC ADR, AMD, and Oracle all dropped over 3%. Micron Technology, Applied Materials, ASML ADR, and Intel all declined over 2%. Affected by this, the three major US stock indices closed lower, with the Nasdaq falling 1.15%.
Wall Street analysts believe that the root cause of the sharp volatility in stocks like Marvell Technology lies in the excessively high expectations previously accumulated by US AI chip concept stocks, with very high valuations, leaving almost no room for error in the financial reports of related listed companies.
Chip Giant Plunges
On the evening of August 29, Beijing time, after the US market opened, Marvell Technology's stock price plummeted, at one point falling nearly 19%. By the close, the decline was 18.6%, with the stock price at $62.87, hitting a nearly three-month low. The total market capitalization shrank to $54.2 billion (approximately RMB 386.4 billion).
Analysis pointed out that the performance guidance provided by Marvell Technology in its latest financial report fell short of market expectations, sparking investor concerns about a future slowdown in performance growth.
Marvell Technology expects Q3 revenue to be $2.06 billion, below the market expectation of $2.12 billion. It anticipates no sequential growth in data center business revenue. The GAAP gross margin is expected to be 51.5%–52%, up sequentially, mainly due to structural impacts from the sequential decline in custom ASIC business next quarter.
Prior to this, Morgan Stanley stated in a report that, against the backdrop of the recent divestiture of the automotive Ethernet business and market concerns about Amazon's Trainium chips, Marvell Technology might provide better-than-expected performance guidance when announcing the latest quarterly results.
The financial report showed that Marvell Technology's Q2 revenue was $2.01 billion, a year-on-year increase of 58%, meeting analyst expectations. Among this, the data center business contributed $1.49 billion in revenue, a year-on-year increase of 69%, but below the average analyst expectation of $1.51 billion. Adjusted earnings per share were $0.67, in line with analyst expectations.
In today's market driven by the artificial intelligence (AI) boom, merely "meeting expectations" is clearly not enough to satisfy investors.
Regarding the volatility in performance guidance, Marvell Technology CEO Matt Murphy explained that the growth of the company's custom chip business is expected to be "non-linear." This means the business may perform modestly in Q3 but will "strengthen significantly" in Q4.
When asked by an analyst about the "volatility" in the custom business guidance, he responded that it is "not uncommon" and expects the company's optical module business to perform strongly next quarter, helping to support the overall revenue trend.
How Big Is the Impact?
Regarding Marvell Technology's financial report and performance guidance, a Morgan Stanley analyst said: "We are not surprised by this imbalance, but we are surprised by the continued decline in ASIC (chip business) revenue for the full year."
Summit Insights analyst Kinngai Chan said that compared to larger peers, Marvell Technology lacks scale, and the multi-vendor procurement strategy adopted by major customers could pressure its profit margins.
Other analysis suggested that Marvell Technology's heavy bets on custom chips make it particularly vulnerable to customer order cancellations or transfers. Recent news that Microsoft is delaying the launch of its own AI chip and that Amazon is losing cloud market share—both scenarios add more uncertainty to Marvell Technology's outlook.
According to data compiled by the London Stock Exchange, Marvell Technology's 12-month forward P/E ratio is 23.95 times, while Broadcom's is 39.03 times. This gap reflects investors' cautious attitude toward its growth prospects.
Before the earnings release, Zacks Investment Research stock strategist Ethan Feller said that Marvell Technology's decline this year reflects the high expectations embedded in AI chip stocks, leaving little room for error.
However, Feller believes that due to its ASIC chips for hyperscale data centers and opportunities in the networking and cloud infrastructure sectors, the chip company "remains an attractive vehicle for participating in the AI boom."
Morgan Stanley analysts noted that they expect Marvell Technology to face short-term supply issues but also believe that the company's optical solutions business for high-speed data transmission in data centers is stronger than generally perceived and more durable and profitable than its ASIC business.
Regarding the cooperation with Amazon AWS, which investors had highly focused on, Morgan Stanley analysts commented: "The debate over Trainium3 (Amazon's next-gen AI training chip) may continue, but we believe the bubble phase has passed and expect its ASIC business revenue to grow steadily."
During the earnings call, Matt Murphy revealed that the company completed the divestiture of its automotive Ethernet business last quarter. This move aims to allow it to "more flexibly" continue its stock repurchase plan and invest more capital into its technology platform.
He stated: "This divestiture aligns with our strategy of focusing on the enormous AI opportunity ahead of us by purposefully shifting our investments from other end markets to the data center."
Matt Murphy added that the company's data center division now contributes three-quarters of total revenue. Starting from Q3, Marvell will consolidate non-data center end markets into one end market for reporting purposes.
