(Reuters) – Chip firm Marvell Technology fell 6% in premarket trading on Friday after its soft forecast showed that a jump in orders for its AI networking equipment was offset by the ongoing slump in demand from the wireless and enterprise markets.
Larger rival Broadcom also fell 2% as it maintained its annual forecast on Thursday, despite a prediction that AI-related chips would bring in $10 billion in sales in 2024.
Expectations were high for both companies as they sell networking chips that help move around the large amounts of data demanded by AI computing, making them potential beneficiaries of the massive investments being made by tech giants like Alphabet.
“Marvell and Broadcom earnings show that while things are improving across the semiconductor landscape, the current quarter’s forecasts are still below what the market was hoping for,” said Bob O’Donnell of TECHnalysis Research.
Marvell’s shares are on course to lose over $4 billion in market value, based on its latest trading price of $80.20, while Broadcom was set to lose more than $15 billion.
Both companies have been grappling with weak demand from customers such as cloud service providers and telecom operators, which are clearing a build of inventory after rapidly stocking up during the pandemic to avoid supply constraints.
“Aggressive under-shipment of demand to flush out excess inventory” impacted Marvell, analysts at J.P.Morgan said.
Marvell forecast first-quarter adjusted earnings per share of 23 cents, plus or minus 5 cents, compared with an estimate of 40 cents per share, according to LSEG data. Net revenue to be $1.15 billion, plus or minus 5%, was also below estimates.
The company’s shares trade at 40.21 times the expected earnings, compared with a forward price-to-earnings (PE) ratio of 27.58 for Broadcom and 36.49 for AI chip front-runner Nvidia. A lower PE multiple indicates a more attractive investment opportunity.
(Reporting by Samrhitha Arunasalam in Bengaluru)
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