By Arsheeya Bajwa and Abhinav Parmar

(Reuters) -Chipmaker Marvell Technology (MRVL) forecast fourth-quarter revenue above estimates on Tuesday, underpinned by robust demand for its custom artificial intelligence chips from businesses racing to develop the most sophisticated generative AI models.

Marvell Technology stock was up 12% before the bell on Wednesday.

Shares of the Santa Clara, California-based company rose more than 8% in extended trading following the results. The stock hit a record high during Tuesday's trading session.

Marvell's shares have risen nearly 60% this year as Wall Street has bet heavily on soaring demand for advanced chips that can support the complex processing needs of genAI.

Shares of larger competitor Broadcom have rallied about 50% this year.

Marvell forecast fourth-quarter revenue of $1.80 billion, plus or minus 5%, compared with analysts' average estimate of $1.65 billion, according to data compiled by LSEG.

While the market for AI processors is dominated by Nvidia, Big Tech companies have been pushing to reduce dependence on the chip leader's supply-constrained semiconductors, which has benefited companies such as Marvell.

Marvell helps large cloud computing companies make custom-built processors.

It began discussing custom chips for hyper-scale data center operators in 2020, and has rapidly grown the business into a significant earner for the company, Marvell Chief Operations Officer Chris Koopmans said in an interview.

"This thing we have been working on for years (has) come to fruition," Koopmans said.

The total market for custom chips could grow to as much as roughly $45 billion by 2028 and largely be split between Marvell and Broadcom, Koopmans said.

According to estimates from research firm 650 Group’s Alan Weckel, the data center custom chip market will grow to as much as $10 billion this year.

Revenue in Marvell's data center segment doubled to $1.10 billion in the third quarter from a year ago. Total quarterly revenue was $1.52 billion, beating estimates of $1.46 billion.

The company said in April it expects its AI chip sales to hit $2.5 billion by fiscal 2026.

Revenue derived from custom AI chips alone could be between $2.5 billion and $3 billion in 2025 for Marvell, with optical equipment adding another $1.5 billion to $2 billion to AI revenue, Jefferies analysts said in a note in October.

While the AI chip business grows, customers in the company's other end-markets, such as wireless carriers, have been driving down chip inventory after excessive buying during the pandemic.