Shares of Marvell Technology (MRVL) tumbled nearly 15% in premarket trading Friday after the chipmaker warned that demand for its data center products wasn’t as strong as investors had hoped. The news fueled fresh concerns about the company’s custom AI chips and their sales to major cloud providers.

Investor Expectations Run High on AI Boom

Wall Street has been riding the AI wave, with chip stocks soaring as investors bet on companies building the infrastructure behind artificial intelligence. But Thursday’s cautious comments from Marvell, combined with Nvidia’s latest earnings report, cast doubts on whether cloud providers are buying chips at the pace markets expected.

CEO Matt Murphy told investors during the company’s earnings call that third-quarter data center revenue would remain flat compared to the prior quarter. That outlook rattled investors who view the data center division as a critical growth engine, especially as AI adoption accelerates.

Cloud Providers Shift Strategies

Marvell has been banking heavily on its custom chip business, which supplies cloud giants like Amazon and Microsoft. These companies are developing their own chips to reduce reliance on Nvidia, but progress hasn’t been smooth.

A recent report suggested that Microsoft’s in-house AI chip rollout has been pushed back until at least 2028. Murphy acknowledged that business with big cloud players can be “lumpy,” since chip demand often depends on unpredictable development cycles and infrastructure spending.

Competition and Market Challenges

Analysts remain cautious. Summit Insights analyst Kinngai Chan pointed out that Marvell is smaller compared to its larger competitors and may see its profit margins squeezed as major cloud clients diversify their chip purchases across several vendors.

That competitive pressure is particularly intense against Broadcom, Marvell’s larger rival in the custom chip and networking space. Broadcom has yet to report its quarterly results, but its higher valuation highlights the gap between the two companies.

Market Value Takes a Hit

If the stock’s premarket slide holds, Marvell stands to lose nearly $10 billion in market value. Its forward price-to-earnings ratio currently sits at 23.95, compared with Broadcom’s 39.03, according to LSEG data.

The setback comes even as the broader semiconductor sector has surged on AI excitement. Marvell’s shares, however, have lagged behind many of its peers, showing the challenges of meeting lofty investor expectations in a crowded and fast-moving market.

Looking Ahead: A Brighter Fourth Quarter?

Despite the disappointing short-term outlook, Murphy offered a glimmer of optimism. He said Marvell expects its custom chip business to rebound in the fourth quarter, suggesting stronger orders could arrive by year’s end.

For now, though, investors are left balancing the promise of long-term AI demand with the reality of uneven chip sales—a tension that continues to define the semiconductor industry.