Marvell forecasts fourth-quarter revenue above estimates on strong AI-backed demand

Chipmaker Marvell Technology forecast fourth-quarter revenue above estimates on Tuesday, betting on robust demand for its custom artificial intelligence chips from businesses adopting booming generative AI technology.

Shares of the Santa Clara, California-based company rose more than 8% in extended trading following the results. The stock hit a record high during Tuesday’s trading session.

Marvell’s shares have risen nearly 60% this year as Wall Street pours billions of dollars into AI-linked stocks, placing huge bets on the future of genAI technology.

Shares of larger competitor Broadcom have rallied about 50% this year.

Demand for advanced chips that can support the complex processing needs of genAI has soared as companies race each other to develop the most sophisticated models.

The company forecast fourth-quarter revenue of $1.80 billion, plus or minus 5%, compared with analysts’ average estimate of $1.65 billion, according to data compiled by LSEG.

While the market for AI processors is dominated by Nvidia, Big Tech has been vying to reduce its dependence on the chip leader’s supply-constrained semiconductors, which has helped companies such as Marvell.

Marvell said on Monday it had expanded its partnership with Amazon.com and entered into a five-year agreement with the tech giant’s cloud unit, which includes supplying custom AI products.

Revenue in Marvell’s data center segment grew 98% to $1.10 billion in the third quarter from a year ago. Its total quarterly revenue was $1.52 billion, beating estimates of $1.46 billion.

The company expects its AI revenue to triple to more than $1.5 billion this year and hit $2.5 billion for the next fiscal year, CEO Matt Murphy had said at a company event in April.

Revenue derived from custom AI chips alone could be between $2.5 billion and $3 billion in 2025 for Marvell, with optical equipment adding another $1.5 billion to $2 billion to AI revenue, Jefferies analysts had said in a note in October.

On the other hand, customers in the company’s other end-markets such as wireless carriers have been working to drive down chip inventory after excessive buying during the pandemic resulted in a supply glut.

Marvell forecast an adjusted gross margin of 60% for the fourth quarter, compared with estimates of 61%.

A significant share of Marvell’s revenue is now derived from custom AI chips as AI-linked demand rises. The company’s custom chips typically carry lower margins than its off-the-shelf products, known as merchant products.

Marvell’s enterprise networking segment posted a 44% fall to $150.9 million in revenue, while that of the company’s carrier infrastructure unit declined 73% to $84.7 million.

The company recorded adjusted earnings of 43 cents per share in the third quarter, compared with estimates of 41 cents.