Marvell Technology shares dropped 7.6% to $266.88 on Tuesday, giving back the gains from Monday's rally driven by news of its upcoming inclusion in the S&P 500 index. The decline came as semiconductor stocks broadly sold off, underscoring the sector's volatility despite strong demand for AI-related chips.
The chipmaker is set to join the S&P 500 before the market opens on June 22, replacing Pool Corp. Index inclusion typically triggers buying by funds that track the benchmark, providing a mechanical boost to the stock. Marvell surged over 9% on Monday after the announcement, but that enthusiasm quickly faded.
The broader chip sector faced pressure, with the Philadelphia Semiconductor Index falling 1.9% on Tuesday after dropping as much as 8.6% earlier. The Nasdaq Composite declined 1%, and the S&P 500 slipped 0.3%. Other chip names like Broadcom and Nvidia also moved lower, reflecting a market increasingly wary of crowded AI bets.
“We are seeing a momentum unwind,” said Michael O'Rourke, chief market strategist at JonesTrading, noting that investors are unloading recent winners that had climbed rapidly. The selloff highlights the tension between Marvell's strong AI growth story and its stretched valuation.
Marvell now trades at around 92 times earnings, a level that leaves little room for disappointment. The company's custom-chip business, which designs processors for cloud data centers, has been a key growth driver. Marvell projects more than $10 billion in revenue from custom chips by fiscal 2029, and its first-quarter fiscal 2027 revenue rose 28% year-over-year to $2.418 billion. The company expects second-quarter revenue of $2.7 billion at the midpoint.
CEO Matt Murphy cited “exceptional AI-related bookings” and said growth should accelerate this fiscal year. Marvell also unveiled the Teralynx T100 switch chip on June 1, capable of 102.4 terabits per second, targeting AI and cloud data center networks. “Large cloud operators need networks that optimize latency, power and scalability simultaneously,” said Rishi Chugh, head of Marvell's data-center switch unit.
Despite these positives, the stock's high valuation and the sector's recent volatility pose risks. Any slowdown in AI orders, delays in custom-chip programs, or a broader market correction could turn the S&P 500 inclusion into a mere liquidity event rather than a catalyst for sustained gains.
Marvell's next move will depend on whether the mechanical buying from index funds can outweigh the profit-taking and sector headwinds. The upcoming trading sessions will reveal which force prevails.
