Marvell: No match for NVIDIA, failing to live up to market expectations, is it time to "squeeze the excess froth" out of its overinflated valuation?

Marvell Technology Marvell(MRVL.O) released its second-quarter fiscal 2027 earnings report (covering the period ending July 2026) after U.S. stock market hours in the early morning of August 28 Beijing time:

1. Full-year outlook: The company raised its fiscal 2027 revenue outlook to 12 billion U.S. dollars (previous quarter guidance was 11.5 billion U.S. dollars), representing a 45% year-over-year increase. It also raised its fiscal 2028 revenue outlook to 18 billion U.S. dollars (previous quarter guidance was 16.5 billion U.S. dollars), representing a 50% year-over-year increase. Among this figure, the data center business will grow by more than 60% (NVIDIA's outlook for next year is over 70%), and custom ASIC revenue will more than double year-over-year (this expectation remains unchanged).

Compared with short-term performance, the market is most concerned about the company's subsequent growth potential. The company's management directly provided revenue outlooks for two full fiscal years in the post-earnings conference communication.

In fact, before the earnings release, mainstream institutions had set revenue expectations for Marvell(MRVL.US) for fiscal 2027/2028 at 11.8 billion U.S. dollars and 17-17.5 billion U.S. dollars respectively. The company's raised outlook this time is only slightly better than market expectations. Compared with NVIDIA's previous outlook that greatly exceeded expectations, Marvell's outlook is obviously "far less impressive".

Driven by the recent agreement signed between the company and Google, the market has begun to hold expectations for the company's custom ASIC business (including seizing Google TPU orders, etc.). However, the company did not raise the guidance for the custom ASIC business in this outlook (it did not mention the ASIC outlook for the current fiscal year, and maintained the expectation of doubling growth for fiscal 2028), which will make the market feel that the agreement signed this time is more like a framework agreement where the company "actively gives money" to Google.

2. Data center business: Revenue in this quarter reached 2.17 billion U.S. dollars, a 19% quarter-over-quarter increase, mainly driven by the growth of connectivity products, and the data center business accounted for 79% of total revenue this quarter.

It is a consensus that the company's connectivity products are the main driving force in the data center business. But at present, compared with connectivity products, the market actually pays more attention to the performance of the custom ASIC business, especially under the background of the recent cooperation agreement signed with Google.

At present, the company's custom ASIC business mainly provides Trainium series chips for Amazon. However, under the competitive impact of Alchip, the performance of the company's custom ASIC business is not very good (significantly weaker than the growth rate of Amazon's capital expenditure).

After Google signed the cooperation agreement with the company, the company's stock price once rose by more than 10% at that time, which was mainly driven by market expectations for custom ASIC (Broadcom TPU orders).

However, the company's management did not raise ASIC guidance in subsequent communications, did not mention the growth target for the current fiscal year (which was 20%+ given in the previous quarter), and maintained the outlook of "doubling growth" for the next fiscal year. Then the market will raise a "question mark" on whether Google can bring incremental custom ASIC/TPU orders to the company?

3. Operating indicators: Revenue in this quarter reached 2.74 billion U.S. dollars, a 13% quarter-over-quarter increase, which is close to market expectations (2.75 billion U.S. dollars). The 300 million U.S. dollar quarter-over-quarter incremental revenue all came from the growth of the data center business.

The gross margin in this quarter was 53.1%, up 1 percentage point quarter-over-quarter. Since the company's gross margin is affected by factors such as amortization of acquired assets, the gross margin in the earnings report cannot directly reflect the operating situation.

After excluding this impact, with reference to the adjusted gross margin calculated by Haitun Research, the company's adjusted gross margin this quarter is 58.3%, which is flat quarter-over-quarter. If businesses with lower gross margins such as custom ASIC accelerate their growth in the future, the gross margin will still face downward pressure.

4. Next quarter guidance: Revenue will reach 3.15 billion U.S. dollars, slightly better than market expectations (3.1 billion U.S. dollars). Combined with the full-year guidance, the company's fourth-quarter revenue will be around 3.7 billion U.S. dollars, with quarter-over-quarter growth of 15-20% for both quarters, which is mainly driven by growing demand for interconnect products; GAAP gross margin will be 52.9%-53.9%. Since the company has provided annual guidance for fiscal 2027/2028, the importance of quarterly guidance is relatively weakened.

Haitun Research's overall view: "Subsidized" alliance, the outlook is "not good enough"

The company's earnings report this time basically meets expectations, and the revenue growth is almost entirely driven by the data center business (interconnect products). After excluding the impact of amortization and other factors, the company's adjusted gross margin is 58.3%, flat quarter-over-quarter.

The company has adjusted its business disclosure caliber starting from this fiscal year, reducing the number of business segments from the original 5 to 2 (data center, communications and others). The data center business is the most important growth point this quarter, with a 19% quarter-over-quarter increase, and the growth is mainly driven by demand for connectivity products.

Since the company has released the full-year outlook, the importance of the next quarter's guidance is significantly weakened, it can be inferred that the company's revenue in the next two quarters will reach around 3.15 billion U.S. dollars and 3.7 billion U.S. dollars respectively, with quarter-over-quarter growth of 15-20% for both periods.

More importantly, the company directly provided two-year revenue outlooks in subsequent communications. The company expects revenue for fiscal 2027/2028 to be 12/18 billion U.S. dollars respectively (previous quarter guidance was 11.5/16.5 billion U.S. dollars). In fact, mainstream market institutions had expected 11.8/17-17.5 billion U.S. dollars before the earnings release. Compared with NVIDIA's previous "explosive" guidance, Marvell's outlook is obviously much less impressive.

Haitun Research believes that Marvell's sharp drop after market hours is mainly due to two reasons:

① After announcing the cooperation with Google, the company did not raise the outlook for custom ASIC, which makes the cooperation look more like a framework agreement of "actively giving money";

② The company's data center business growth outlook for fiscal 2028 is 60%+, while NVIDIA, which has a much larger revenue base, has given a next-year growth guidance of 70%+, which makes the explosive potential of the connectivity business seem not strong enough.

Apart from the earnings data, Marvell has the following key areas of concern:

1) ASIC sector

Recently, Marvell Technology Marvell announced its cooperation plan with Google: the company plans to grant Google a total of 58.97 million share warrants, with the warrant issuance date set as August 18, 2026, and the exercise price set at 206.58 U.S. dollars per share.

The plan can be specifically divided into two parts: ① 1.36 million shares are directly granted, with 340,000 shares vesting respectively after 3/6/9/12 months according to the schedule; ② 57.61 million shares are unlocked based on performance (divided into 240 portions), that is, starting from August 1, 2026, one portion (about 240,000 shares) will be unlocked for every 500 million U.S. dollars of qualified revenue achieved.

Among them, qualified revenue is defined as revenue from Google's custom ASIC chips, including AI inference accelerators, storage controllers, network interface controllers, memory interface controllers, and near-memory computing products.

It is clearly visible that Marvell is in a relatively weak position. The purpose is also very clear: it mainly wants to win Google's custom ASIC orders, and grants Google part of the share warrants first to "show goodwill". The overall method actually refers to the previous cooperation method between the company and Amazon.

2) Network and connectivity capabilities

After acquiring XConn (PCIe/CXL switching), Celestial AI (photonic interconnect), and Polariton (electro-optic modulator), the company has obtained complete capabilities across the three major AI network layers: Scale-Out, Scale Up, and Scale-Across, which can provide customers with a full set of high-speed interconnect hardware combinations from inside the rack to cross-data center scenarios.

In the current Scale-out optical interconnection scenario, traditional pluggable optical modules are still the absolute mainstream. Large manufacturers such as NVIDIA and Google basically adopt the pluggable optical module solution, and Marvell's PAM4 DSP is relatively leading in the pluggable optical module market. The company's management also mentioned before that "the 1.6T solution has begun mass production and will achieve rapid ramp-up in fiscal 2027", which will be the main growth point for the company's interconnect products.

3) CXL memory expansion/pooling (Structera): At the current AI inference stage, massive KV Cache is required. As HBM is too expensive and DRAM does not have enough capacity, NAND/storage-class memory can be used for expansion.

Marvell's layout in the CXL memory expansion and pooling field mainly includes three categories: Structera A, Structera X, and Structera S, which perform the functions of near-storage accelerator, memory expansion controller, and memory pooling & switching respectively.

Compared with NVIDIA and Broadcom, Marvell Technology Marvell has a relatively high valuation, which mainly includes market expectations for the company to seize market share in AI ASIC chips and achieve high growth in the connectivity sector. However, the company's data center growth rate outlook for fiscal 2028 is only 60%+, even lower than NVIDIA's 70%+ guidance, which naturally cannot satisfy the market.

On the other hand, the recent rise in the company's stock price is partly driven by the cooperation agreement signed with Google. Combining the agreements signed between Marvell and Google, Amazon, it is obvious that the company is in a "disadvantaged" position in negotiations at present. However, the company did not raise ASIC guidance this time, which will make the market feel that this agreement is more like a framework agreement of "actively giving gifts".

Overall, the company's earnings performance this time basically meets expectations, and the "sharp drop after market hours" is mainly due to market dissatisfaction with the company's full-year outlook. Since the market mainly values the company's subsequent growth potential, events such as the recent slowdown of open-source models and Anthropic ARR growth slope will amplify the volatility of the company's stock price.

There are relatively few players in the AI chip market, and Marvell is one of the rare U.S.-owned ASIC companies that has established cooperation with many large manufacturers. Broadcom once reached a market value of 2 trillion U.S. dollars with its TPU cooperation with Google, while Marvell's market value is only 200 billion U.S. dollars. If Marvell can seize 10-20% of the TPU market share, it is expected to directly bring tens of billions of U.S. dollars in annual revenue increment to the company (currently the company's full-year custom ASIC revenue is only about 2 billion U.S. dollars), which is also the main reason for the market's expectations for the company.

Regarding the fact that ASIC guidance was not raised this time, the company's management later added that relevant content will be expanded and scenario ranges will be provided at the Analyst Day on October 6. We will pay attention to the specific guidance at that time.

Although the company's full-year outlook is not very good, the company has successfully "given gifts" to both Amazon and Google after all, and the market will still look forward to the opportunity to win some orders subsequently.

Only under the current high valuation, the stock price will face downward