Marvell Technology’s shares dropped by nearly 18% as its data center demand outlook fell short of expectations due to irregular sales of custom AI chips to cloud giants. CEO Matt Murphy’s comments about flat third-quarter revenue raised concerns about growth in the key segment reflecting demand for AI data center hardware.

Marvell’s revenue is increasingly driven by its custom chip business, servicing cloud providers like Amazon and Microsoft, who are reducing dependence on Nvidia. Concerns were raised about Microsoft delaying its in-house AI chip rollout, but some analysts believe this could benefit Marvell by increasing reliance on its services.

Analysts have differing views on Marvell’s future, with Morningstar’s William Kerwin suggesting the delay could benefit the company. However, Summit Insights analyst Kinngai Chan believes Marvell lacks scale compared to larger peers, potentially impacting margins. Marvell competes with Broadcom for cloud providers’ custom chip and networking businesses.

Marvell is expected to lose close to $12 billion in market value if losses hold. Despite a lower forward P/E ratio compared to Broadcom, Marvell anticipates a stronger custom business in the fourth quarter. CEO Murphy remains optimistic about an uptick in custom chip orders later in the year.

Read more at Yahoo Finance: Marvell sinks as weak data center outlook stokes custom AI chip worries