Marvell Technology Shares Face Mounting Competitive Threats

Shares of semiconductor design firm Marvell Technology came under significant selling pressure on Monday, closing approximately 7% lower at $92. The decline contrasted sharply with the optimistic sentiment from the prior week, highlighting the volatile nature of the current AI chip market.

The downturn was triggered by a dual dose of negative news. Analyst Cody Acree of Benchmark downgraded Marvell's stock from "Buy" to "Hold," simultaneously removing his price target. Acree's rationale centered on a significant competitive loss: he asserted that Marvell had lost design contracts for Amazon's upcoming AI chips, Trainium 3 and Trainium 4, to Taiwanese competitor Alchip. Consequently, Acree anticipates growth in Marvell's custom processor business will slow to just 20% by calendar year 2026.

Adding to the pressure, a report from The Information indicated that Microsoft is negotiating with rival Broadcom over the design of custom chips. This development raises concerns that Marvell could be excluded from future versions of Microsoft's Maia AI accelerators.

Furthermore, market hopes for Marvell's inclusion in the S&P 500 index were dashed. Despite meeting profitability criteria, S&P Dow Jones Indices selected other candidates for addition.

Recent Strength and Ambitious Acquisition

Monday's sell-off stands in stark opposition to the company's recent positive momentum. On December 2, Marvell reported strong quarterly results, with revenue of $2.08 billion and earnings per share of $0.76, both exceeding market expectations.

Should investors sell immediately? Or is it worth buying Marvell Technology?

Simultaneously, the company announced a major strategic acquisition to bolster its optical connectivity portfolio. Marvell revealed plans to acquire Celestial AI in a deal involving an upfront payment of approximately $3.25 billion. The transaction also includes potential performance-based payments of up to $2.25 billion, bringing the total potential value to $5.5 billion.

Management has expressed robust confidence in its long-term outlook, projecting that its data center business will grow by more than 25% in fiscal 2027 and by approximately 40% the following year. It is precisely this growth forecast that Benchmark's downgrade now calls into question.

Diverging Views on Wall Street

Not all market analysts share this newfound skepticism. JPMorgan analyst Harlan Sur defended the equity on Monday, raising his price target to $130. He characterized the market's reaction to the competitive rumors as overblown, reaffirming his "Overweight" rating based on the firm's long-term growth trajectory in the data center segment.

Moving forward, a key technical level to watch will be the $90 support mark. The stock's ability to hold this level in the coming sessions, coupled with eventual clarity regarding the status of its partnerships with Amazon and Microsoft, is likely to set the directional tone for Marvell's shares.