In this fast-paced era of technological advancement, Marvell Technology recently announced that it expects its revenue for the fourth quarter to exceed market expectations. The reason is simple: strong demand for artificial intelligence chips has propelled their business forward. The company's stock rose by 12% before the market opened on Wednesday, and during extended trading, it even surged over 8%, reaching a record high.
Marvell's stock has increased nearly 60% this year, thanks to the market's enthusiastic demand for advanced chips that meet the processing needs of increasingly complex generative AI models. Competing Broadcom has also seen its stock rise by about 50%.
Marvell predicts that its fourth-quarter revenue will reach $1.8 billion, with a range of 5%. In contrast, analysts' average expectation is $1.65 billion. Although the market for AI processors is primarily dominated by Nvidia, major tech companies are striving to reduce their reliance on these scarce chips, creating opportunities for companies like Marvell.
Since 2020, Marvell has been dedicated to developing custom chips for large cloud computing companies. In just a few years, this business has rapidly grown to become a significant source of profit for the company. Marvell's Chief Operating Officer, Chris Koopmans, stated in an interview, "Our efforts over the years have finally paid off." He anticipates that the market for custom chips will reach approximately $45 billion, with Marvell and Broadcom capturing a large portion of the market share.
According to data from research firm 650Group, the market for custom chips in data centers is expected to grow to $10 billion this year. Marvell's data center revenue in the third quarter doubled year-over-year, reaching $1.1 billion, while total quarterly revenue was $1.52 billion, exceeding the market expectation of $1.46 billion.
Marvell had previously projected that sales of AI chips would reach $2.5 billion by fiscal year 2026. Analysts estimate that Marvell's revenue from custom AI chips alone will range between $2.5 billion and $3 billion in 2025, while revenue from optical devices could contribute an additional $1.5 billion to $2 billion to its AI business.
Despite the rapid growth of its AI chip business, Marvell's customers in other markets, such as wireless carriers, are reducing chip inventories due to aggressive purchasing during the pandemic. The company's enterprise networking segment saw a significant decline in revenue of 44%, down to $150.9 million, while revenue from carrier infrastructure plummeted by 73%, falling to $84.7 million.
For the fourth quarter, Marvell expects an adjusted gross margin of 60%, slightly below the market expectation of 61%. This forecast is not surprising, as the gross margins for custom chips are typically lower than those for standard products. Marvell's adjusted earnings per share for the third quarter were 43 cents, exceeding analysts' expectations of 41 cents.
Marvell Technology's success story not only delights shareholders but also injects a boost for the future development of AI technology. Let us wait and see how this company continues to lead in this exciting field!