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Why are investors concerned about Marvell’s custom AI chips business?

by May 31, 2025
by May 31, 2025

Marvell Technology Inc (NASDAQ: MRVL) came in marginally above Street estimates for its fiscal Q1 on “strong AI demand in the data-center end market.”

Additionally, the semiconductor giant guided for “continued strong growth” in its current quarter as well on Friday.

However, Marvell stock still lost as much as 7.0% this morning as investors expressed concerns about the company’s AI chips business.

Why is Marvell stock inching down on Friday?

The overall sentiment around Marvell’s work with Amazon on its custom AI chip (Trainium) has been positive since last year.

And while Trainium 2 builds are solid and contributing to short-term ASIC revenue, it’s somewhat troubling that markets are still debating whether a more powerful successor will actually come out later this year as expected.

This casts doubt on project execution and visibility, which undermines confidence in the longer-term stability and quality of the business, argued Morgan Stanley analysts in their research note ahead of MRVL’s earnings print.

They remain concerned about Marvell’s ASIC business as its prospects rely solely on the launch of one chip. Note that Marvell stock has been cut in half since the final week of January.

MRVL shares are overly dependent on Amazon’s business

Melius Research has also flagged concerns about Marvell potentially losing future chip design (for Trainium 3 and Trainium 4) to Taiwan-based AIchip.

If AIchip gains more share in Amazon’s future chip development, MRVL could see revenue erosion or no further upside from this partnership, they argued in a recent note to clients.

All in all, investors are bailing on Marvell shares despite a slightly better-than-expected quarter and reasonable guidance primarily because its AI revenue is not as diversified as they’d like it to be.

“It’s not enough, they need more hyperscalers,” added famed investor Jim Cramer as he appeared on CNBC this morning.

Marvell stock currently pays a dividend yield of 0.40%, but that’s not exciting enough for investors to stick to it in the wake of aforementioned concerns.

Cramer picks Broadcom over Marvell to play custom AI chips

On “Squawk on the Street”, Cramer agreed that someday the market will perhaps look back and say Marvell is a “really good company.”

In fact, under different circumstances, the company’s Q1 earnings could have triggered a stock price increase, Cramer argued.

However, for the time being, there may be more attractive ways to gain exposure to the custom AI chip segment—such as Broadcom Inc (NASDAQ: AVGO), he added.

That said, Piper Sandler analysts remain bullish as ever on Marvell stock following its first-quarter financial results.

The investment firm reiterated its “overweight” rating on the AI stock today and raised its price target to $95, indicating potential upside of nearly 60% from current levels.

Piper Sandler expects artificial intelligence to remain a key driver of revenue growth for MRVL and recommends owning it since the company is on track for a material acceleration in XPU volume.

The post Why are investors concerned about Marvell’s custom AI chips business? appeared first on Invezz

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