The Small AI-Chip Maker That’s Now More Valuable Than Intel

Summary

WSJ Tech News Briefing

Episode: The Small AI-Chip Maker That’s Now More Valuable Than Intel
Release Date: December 10, 2024
Host: Belle Lin
Author: The Wall Street Journal

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Introduction

In this episode of WSJ Tech News Briefing, host Belle Lin delves into two significant developments reshaping the tech landscape. First, she explores Robinhood's strategic pivot from its mobile-first approach back to desktop platforms. Second, she highlights Marvell, a relatively obscure AI chipmaker that has recently surpassed Intel in market capitalization. These discussions provide insights into evolving investment platforms and the dynamic semiconductor industry.

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Robinhood's Return to Desktop: Shifting Strategies in Online Trading

Robinhood, renowned for democratizing stock trading through its user-friendly mobile app, is embarking on a strategic shift towards desktop platforms. This move aims to capture a more dedicated segment of traders—active traders who require advanced tools and functionalities typically found on desktop interfaces.

Key Discussion Points:

• Targeting Active Traders:
  Tellus Demos questions the rationale behind Robinhood's expansion into desktop platforms. Danny Lewis explains, “Robinhood is going about addressing that. They've launched a new platform called Legend and that is meant to compete with the best of the kind of day trading semi-pro tools that are out there” (02:49). This indicates Robinhood's intent to attract serious, semi-professional traders who demand robust analytical tools.

• Balancing Ease of Use with Advanced Features:
  While Robinhood's mobile app made trading accessible to the masses, potentially at the cost of depth, the introduction of Legend signifies a balance between simplicity and the sophisticated needs of active traders. Danny Lewis further elaborates, “These aren't just people who are like, oh, I'm gonna buy a little stock today. They're like, I'm looking at charts, I'm looking at technical ideas, I'm looking at research. This is what I do semi professionally” (01:47).

• Strategic Revenue Streams:
  Robinhood’s shift also aligns with diversifying revenue streams beyond casual trading. Lewis notes, “It's a way to get them in the door to then serve them up other financial products. That's traditionally how a lot of other platforms and how banks work” (02:57). This strategy mirrors traditional banking models, where initial engagement leads to the offering of additional financial services.

• Long-Term Vision:
  Robinhood is betting on the future of retail investing, emphasizing user autonomy and distrust of traditional financial institutions. Lewis states, “Their thesis is that they have this big idea that like, people don't trust institutions. People want to take control of their own things” (02:57).

Conclusion on Robinhood: Robinhood's pivot to desktop platforms through the Legend initiative represents a strategic expansion to cater to more engaged traders, balancing ease of access with advanced trading capabilities. This move not only aims to enhance user engagement but also to establish more sustainable revenue streams by offering a broader range of financial products.

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Marvell Surpasses Intel: The Rise of an AI Chip Powerhouse

In a surprising turn of events, Marvell, a relatively small AI chipmaker, has eclipsed Intel in market capitalization. This achievement underscores the shifting dynamics within the semiconductor industry, largely driven by the surging demand for AI and data center technologies.

Key Discussion Points:

• Marvell's Core Business and Growth Drivers:
  Dan Gallagher provides an overview of Marvell’s operations, highlighting its role in designing a diverse range of chips used in various applications, from automotive systems to data centers. He explains, “Marvell... have grown this business of helping other big tech companies customize their own chips because... they can design those things for specific tasks to run much more efficiently” (06:35).

• Strategic Partnerships with Tech Giants:
  Marvell's recent partnerships with industry leaders like Amazon and Google have been pivotal. During Amazon's Re Invent conference, Amazon announced a new family of AI-oriented chips developed in collaboration with Marvell, signaling strong demand for customized AI hardware (07:28).

• Financial Performance and Market Position:
  Marvell's earnings report revealed robust growth in its data center segment, which now drives overall company growth despite challenges in other areas. Gallagher notes, “They finally reached this tipping point where that data center business is now big enough that it's actually propelling overall growth for the company” (07:28).

• Leadership Stability Amidst Industry Rumors:
  Recent industry rumors suggested that Intel was considering Matt Murphy, Marvell's CEO, as a potential candidate to replace Intel's ousted CEO, Pat Gelsinger. However, Murphy affirmed his commitment to Marvell, emphasizing stability during a critical growth phase (08:57).

• Comparison with Intel:
  While Marvell's market cap has surpassed Intel’s, Gallagher clarifies the disparity in revenue, stating, “intel now still makes about 10 times as much revenue. Marvell, though its market capitalization is actually past that of intel because intel... is having a lot of struggles” (09:09). Intel's challenges include declining chip market shares and financial losses from its chip manufacturing ventures.

• Future Prospects and Risks:
  The semiconductor industry is highly cyclical, and Marvell acknowledges potential risks. Gallagher highlights, “If AI demand doesn't eventually materialize with the end customer... that could threaten that kind of spending” (10:05). Sustained demand for AI and data center chips is crucial for maintaining Marvell's growth trajectory.

Conclusion on Marvell: Marvell's ascent above Intel in market capitalization underscores the transformative impact of AI and data center technologies on the semiconductor industry. Through strategic partnerships and a focus on customized chip solutions for major tech companies, Marvell has positioned itself as a key player in the AI hardware space. However, the company remains mindful of the cyclical nature of the industry and the necessity for enduring AI-driven demand.

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Final Thoughts

This episode of WSJ Tech News Briefing illuminates critical shifts within the tech sector. Robinhood's strategic realignment towards desktop platforms reflects a nuanced understanding of trader demographics and revenue diversification. Simultaneously, Marvell's remarkable rise highlights the evolving landscape of the semiconductor industry, driven by the imperatives of AI and data center infrastructure. These narratives collectively illustrate the dynamic interplay between technology innovation, strategic business decisions, and market forces shaping the future of tech.

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Notable Quotes:

• Danny Lewis on Robinhood's Targeting of Active Traders:

  “These aren't just people who are like, oh, I'm gonna buy a little stock today. They're like, I'm looking at charts, I'm looking at technical ideas, I'm looking at research. This is what I do semi professionally.”
  (01:47)

• Dan Gallagher on Marvell's Role in Customized Chip Design:

  “Having these customized processors really helps them, and Marvell plays a really key role in that process.”
  (06:35)

• Dan Gallagher on Intel's Challenges Compared to Marvell:

  “Intel now still makes about 10 times as much revenue. Marvell, though its market capitalization is actually past that of intel because intel... is having a lot of struggles.”
  (09:09)

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Timestamps Reference:

• [01:43] - Start of Robinhood discussion
• [02:49] - Explanation of Robinhood's Legend platform
• [07:28] - Marvell's partnership with Amazon and earnings report
• [08:57] - Intel CEO rumors and Marvell's leadership stability
• [09:09] - Comparison between Marvell and Intel
• [10:05] - Discussion on potential risks for Marvell

Transcript

[Merrill Lynch Representative]

You want a straightforward path to your goals. But at Merrill, we know things may get in the way or new opportunities can put you at a crossroads with the bull at your back. I found a better route. You get a personalized plan, turn left and a clear path forward. Go to ML.combullish to learn more. Merrill, a bank of America company what would you like the power to do.

[Merrill Lynch Compliance Officer]

Investing involves risk Merrill Lynch Pierce Veteran Smith Inc. Registered broker Dealer Registered investment advisor Member SIPC A wholly owned subsidiary of bank of America Corp.

[Belle Lin]

Welcome to Tech News briefing. It's Tuesday, December 10th. I'm Belle Lin for the Wall Street Journal. Robinhood, the online brokerage, got its start by making it easy to trade stocks on mobile devices. We'll find out why the company now believes it needs to go back to the desktop computer, then. A small chipmaker named Marvell may not be a household name yet, but its latest gains have put the company's market cap ahead of the chip giant Intel. Our Herd on the street columnist Dan Gallagher tells us what's behind Marvell's stock and how the company can stay on top. But first, Robinhood is heading into the era of desktop computers. The trading platform best known for its mobile app seems to be heading back in time as part of its growth strategy. WSJ's Danny Lewis spoke with Tellus Demos, a writer for our Heart on the street column and co host of WSJ's take on the Week podcast. Here's their conversation.

[Tellus Demos]

Tell us, why does Robinhood want to build up a desktop user base?

[Danny Lewis]

Well, when you think of Robinhood, of course, you think of how it really became prominent, and that was making it really easy to trade, particularly on your mobile phone. Robinhood's obviously been through a lot the last few years. It's had its ups and downs through the 2021 meme stock craze to the sort of down market of 2022. And now things have come roaring back for a lot of traders. And so what Robinhood is saying is that one thing it really wants to do is lock down what it calls active traders. That is people who are retail traders but are very serious about it. These aren't just people who are like, oh, I'm gonna buy a little stock today. They're like, I'm looking at charts, I'm looking at technical ideas, I'm looking at research. This is what I do semi professionally. And so that clientele, Robinhood says a lot of what they do takes place on a desktop. And so Robinhood is going about addressing that. They've launched a new platform called Legend and that is meant to compete with the best of the kind of day trading semi pro tools that are out there.

[Tellus Demos]

And so they are one of the biggest names in investing platforms on smartphones. Why not just keep leaning into that technology?

[Danny Lewis]

So what's great about that technology is certainly that it does make it easier for just about anyone to trade. Maybe too easy, a lot of critics would say. And so what's the lure of that is like, okay, you get somebody in to do a little bit of trading, you might not make a ton of money from that person's trading. They're not trading that actively. Maybe they're not putting a ton of money onto the platform. But that is a way to get them in the door to then serve them up other financial products. And that's traditionally how a lot of other platforms and how banks work. And by the way, what Robinhood's thesis is is that they have this big idea that like, people don't trust institutions. People want to take control of their own things. Like crypto's, the future. I don't want to be involved with a bank or anyone else, so I want to take control. So it's a bet too, on what the future investor looks like.

[Tellus Demos]

What does this term mean for Robinhood's future?

[Danny Lewis]

Although Robinhood has evolved a lot since the 2021 meme stock craze, that they were already on the map, but that like really put them on the map in the public consciousness after that. Certainly I, and I feel like a lot of other people that I was reading and talking to figured that they would move in another direction. Right? They. You would see that like trading is this volatile business line. There are times when everybody's trading like crazy and there are times when everyone's scared and they run away from the market. And so that's too volatile to build a business of. You need to have reliable revenue. And that's what call it banking revenue means like, oh, I have an account with you where I keep my money. You make money from that every day. Oh, I put my retirement assets with you and you earn a little percentage of my money. Right. That's a reliable revenue source. And so everybody thought that that's where Robinhood might go. And they want to do those things too. But the fact that they really want to have a big focus on the active trader is just a little bit of a different direction than that. And they're arguing that they can do that and still win in the broader market.

[Tellus Demos]

Telus Deimos is a writer for our Heard on the street column, and he's the co host of WSJ's take on the Week podcast, which you can catch every Sunday. Check out the latest episode now. Wherever you get your podcasts. Tellus thanks for joining us.

[Danny Lewis]

Thanks for having me.

[Belle Lin]

Coming up, it's time to meet the small AI chip maker that's playing a key role in helping tech giants like Google and Amazon build their own chips. That's after the break.

[Merrill Lynch Representative]

You want a straightforward path to your goals, but at Merrill, we know things may get in the way or new opportunities can put you at a crossroads. With the bull at your back. You get a personalized plan and a clear path forward. Go to ML.combullish to learn more. Merrill, a Bank of America company what would you like the power to do.

[Merrill Lynch Compliance Officer]

Investing Involves risk Merrill Lynch Pierce Veneran Smith Inc. Registered Broker Dealer Registered Investment Advisor Memor sipc, a wholly owned subsidiary of bank of America Corp.

[Belle Lin]

Things are looking bright for Marvell, an AI chipmaker whose market capitalization briefly rose above $100 billion this past week. So what's driving Marvell's revenue? It's partnerships with tech giants including Amazon and Google, which need its chips and hardware for their data centers and AI. For more on this under the radar chipmaker, we're joined by our Herd on the street columnist Dan Gallagher. Dan, a lot of us haven't heard of Marvell before. Tell us, what does it do?

[Dan Gallagher]

They are a chip company, a chip designer. For a long time they specialized in this wide range of chips that does everything from TV set top boxes. They do chips that are used in autos, and they do chips in data centers. But they've also grown this business of helping other big tech companies customize their own chips because we've heard a lot of stories about how companies like Google and Amazon and Microsoft design a lot of their own chips that are used in their data centers because they can design those things for specific tasks to run much more efficiently than the stuff they buy from companies like Nvidia or Intel or amd. They still spend a lot on chips from those companies, especially from Nvidia. But having these customized processors really helps them, and Marvell plays a really key role in that process.

[Belle Lin]

So let's step back a little bit. Why has Marvell been in the headlines recently?

[Dan Gallagher]

Well, last week was a really big one because Amazon was having their annual user conference they called Re Invent, and as a part of that, they announced the new family of chips that they're working on. And Marvell's name came up in that it's not a deal for just one chip Amazon's doing. It's a deal that covers at least a few versions of a family of chips designed for AI type of tasks. So it was clear that Marvell was growing their Amazon business. Then Marvell had their own earnings report which showed this really just gangbusters growth in their data center business. And what was really important for Marvell is that, like a lot of chip companies that have AI exposure, they have all these other legacy businesses that aren't growing well or even shrinking. But they finally reached this tipping point where that data center business is now big enough that it's actually propelling overall growth for the company, even as these other areas have been a little bit weaker. The same week, we saw that intel essentially forced out its CEO, Pat Gelsinger, and there was a few media reports from different outlets that named Matt Murphy, Marvell's CEO, as somebody that intel was looking at for a potential candidate. The timing was obviously interesting because it was going right into Marvell's earnings. And essential said, I'm not going anywhere. I'm really happy here. When they're working this closely with big companies like this, and Marvell is not a huge company in its own right, the CEO plays a super important role in that. And I think he probably felt like it wasn't a good time for there to be doubt about who was going to be running Marvell.

[Belle Lin]

Yeah, absolutely. So let's talk a little bit about Intel. To the extent that you can sort of compare and contrast these two companies and their recent trajectories, tell us a little bit about how they're alike and different.

[Dan Gallagher]

Well, I mean, intel now still makes about 10 times as much revenue. Marvell, though its market capitalization is actually past that of intel because intel, as we reported, just is having a lot of struggles. They're trying to make this business to become a factory for others to make chips. That's losing a ton of money right now. And the chips that they design have been losing share in the market, and some of the segments that they sell into that they still have a strong share, like PCs. That's just not a growing segment.

[Belle Lin]

Yeah, it's fair to say that this is not the last we'll be hearing of Marvell, and maybe it'll become more of a household name.

[Dan Gallagher]

We'll see. And maybe there'll be less confusion with the comic book company.

[Belle Lin]

That's right. There's an extra L there. Okay, last question for you, Dan. What has Marvell's CEO said about potential risks to its share price. Of course, no company is bulletproof and its sort of potential vulnerability to any downturns maybe in AI spending.

[Dan Gallagher]

Well, this is a very cyclical business. And right now AI demand has kind of kept sales for companies like Nvidia. They haven't seen any hiccups yet since that kind of started 18 months ago. But especially when big tech companies buy chips from data centers, they buy a lot of components and then they sometimes slow down spending to kind of digest those components and get them installed and so forth. And so we're probably going to see patterns like that emerge. And of course, I think the risk for all these companies that are getting a lot of money right now for AI components, if AI demand doesn't eventually materialize with the end customer, the business customers, the consumers, that could threaten that kind of spending. That's elevated the sales for these chip companies so much lately.

[Belle Lin]

That was Dan Gallagher, a tech columnist for WSJ's Heard on the street column. And that's it for Tech News Briefing. Today's show was produced by Pierre Bienname and Julie Cheng, with supervising producer Catherine Millsop logging off. I'm Belle Lynn for the Wall Street Journal. We'll sign back in this afternoon with TNB Tech Minute. Thanks for listening.

[Merrill Lynch Representative]

Say this is your financial life. Over time, things can get more complex. With a personalized plan, Merrill can help you navigate it all. Learn [e-mail] Bullish Merrill, a bank of America company. What would you like the power to.

[Merrill Lynch Compliance Officer]

Do Investing involves risk. Merrill Lynch Pierce Veneran Smith Inc. Registered broker Dealer Registered investment advisor Member sipc, a wholly owned subsidiary of bank of America Corp.