The Bluebirds could receive up to £5m for the Scotland goalkeeper.
But Giles says the 31-year-old is worth at least £8m, underlining Cardiff's malaise in the Championship.
"They are going to get £3.5m and they're selling him on the cheap. And that tells me where the club is going: nowhere," said Giles.
Marshall agreed personal terms with Hull after being omitted from Saturday's Championship defeat by Reading.
The 31-year-old has made more than 280 appearances for Cardiff since arriving from Norwich City for free in 2009.
Cardiff are 17th in the 24-strong division with one win, two draws and two defeats.
Marshall is widely regarded as their star player and Giles, who had two playing stints with the club lasting a combined total of six years, is unhappy at the player leaving.
"I think it's a joke. Personally I think David Marshall is worth £8m, probably more than that to any club," said Giles before Marshall's move was finalised.
"Football today, I hate it, all these stats - they keep going on with stats, but if you look at Marshall's stats, they would without a doubt be better than anyone in the Championship and be a lot better than goalkeepers in the Premier League and they've let him go.
"Probably if Hull win the Premier League they'll get £5m."
"They are going to get £3.5m and they're selling him on the cheap. And that tells me where the club is going: nowhere."
Giles agrees that Cardiff City need a proven goalscorer, but does not believe one will be signed.
"Without a doubt Cardiff need a striker and talking to fans, they're looking for someone to score 15-20 goals a season," he told Radio Wales Sport.
"Well that's not going to happen this year and unfortunately we're looking at a season where if they finish half way, they've done well.
"Is that going to bring your fans back? You'll always get your diehards going, but is that going to get enthusiastic people coming down to Cardiff City Stadium?
"It's a poor Cardiff City when they're watching second-rate football."
The sale by Cardiff City of captain David Marshall to Hull City has been described as "a joke" by former midfielder David Giles.