Marvell Technology announces a transformational agreement with AWS for custom AI chips and high-speed networking silicon.
Marvell Technology surged 22% in midday trading following third-quarter results that exceeded expectations across the board. The chipmaker reported third-quarter revenue of $1.52 billion, up 7% from the year ago period and ahead of Wall Street expectations of $1.46 billion. Adjusted profits of $0.43 per share also beat analyst forecasts of $0.41 per share. The outperformance was driven by stronger-than-expected demand for artificial intelligence solutions across the semiconductor industry.
The catalyst behind investor enthusiasm was Marvell's announcement of a major long-term agreement with Amazon Web Services. Marvell signed a "comprehensive multi-generational five-year agreement" with AWS that covers AI chips, optical chips, data center modules, and Ethernet switching solutions. President and CEO Matthew Murphy characterized the deal as "a significant step-up in the expected volume of business" between Marvell and Amazon, enabling the company to raise its full-year guidance substantially. Marvell now expects fourth-quarter revenue of $1.8 billion and adjusted earnings of $0.59 per share, compared to analyst forecasts of $1.65 billion in revenue and $0.56 in per-share profits.
Marvell manufactures custom AI accelerator chips for multiple hyperscalers, including Alphabet, Microsoft, and Amazon, positioning itself in a growing niche distinct from Nvidia, which remains far and away the leader in AI chips. For Amazon specifically, Marvell produces the Trainium chip and is expected to start producing the Inferentia chip next year. AWS uses these chips to offer customers alternatives to training large language models on Nvidia GPUs, which are significantly more expensive and difficult to procure. Marvell also produces Alphabet's Axion chip for Google.
The shift toward AI has come at the expense of other business segments. Non-data center revenue plummeted 50% from the year-ago period, dropping from $850 million to $415 million. Carrier infrastructure sales were down 73%, enterprise networking fell 44%, consumer declined 43%, and automotive fell 22%. However, data center product sales surged to $1.1 billion in the third quarter from $556 million the previous year, now accounting for 73% of Marvell's total revenue compared to just 39% one year ago.
With momentum accelerating ahead of internal forecasts, Marvell's stock has recorded remarkable gains, up 94% in 2024 and 125% over the past year. Management had expected AI revenue to double this year and then double for several years running, with projections of $1.5 billion in AI sales for the year and as much as $2.5 billion by 2026. As Marvell is already running ahead of those estimates, the chipmaker could exceed $3 billion in AI sales within the next two years.