Pay-to-win · Hardcore Technology | Who is the "Little NVIDIA"?

Author｜Song Wanxin

Editor｜Zheng Huaizhou

So far, all companies involved in the field of artificial intelligence have reaped gains with the technological dividend, but the majority of these gains are only at the valuation level. Only a very few companies have made profits from the AI wave.

Nvidia is obviously one of these few. It has successfully balanced the costs of artificial intelligence and created a significant amount of profit. However, the recent performance of another chip company, Marvell, is also attracting market attention and is considered to be an AI-era shovel seller with the same certainty as Nvidia.

In the secondary market, since May last year, Marvell's share price has risen from a low of $40 to around $80, doubling in value. More importantly, the financial indicators for the first two quarters of this year show Marvell's strong growth momentum benefiting from AI, and the future guidance is also strong.

The second-quarter earnings report for fiscal year 2025, released at the end of August, shows that Marvell's data center business revenue was $881 million, with a year-on-year growth of as high as 92% and a sequential growth of 8%. In the first quarter, this sector even recorded a high-speed growth of 1.87 times year-on-year.

For the third quarter, the company expects data center revenue to still increase by about 10% sequentially.

Overall, although several of Marvell's other traditional businesses are in a declining trend, the growth of the data center business is highly certain. On the demand side, downstream companies are still continuously increasing their investment in data centers. For example, recently Microsoft and BlackRock jointly created a $30 billion fund to invest in the construction of data centers.

The investment in data centers shows no sign of slowing down, which will continue to drive the demand for Marvell's data center products and is the main source of market confidence.

01 Eating Meat with Nvidia

Marvell's growth certainty is closely related to Nvidia.

In the large demand for chips driven by generative AI, Nvidia's high-performance GPUs are highly sought after. There is a strong binding relationship between GPUs and optical modules, so the performance trend of the optical module industry chain is highly similar to that of Nvidia.

Not only Marvell, which makes upstream optoelectronic chips, but also the three major domestic manufacturers that mainly assemble optical modules have also shared in the dividends.

Essentially, Marvell's growth comes from the high-performance computing (HPC) demand required for AI training and reasoning, which drives the continuous upgrade of the data center architecture. And the data transmission and throughput between AI servers in the data center rely on optical modules and DPUs.

From the perspective of the optical module industry chain, the upstream includes optical chip manufacturers and optical device suppliers, such as Marvell. The midstream includes optical module manufacturers, optical communication chip manufacturers, and optical communication equipment suppliers, who are responsible for assembling complete optical modules and developing the corresponding driving circuits and control systems, such as Tianfu Communication, Zhongji Xusheng, and Xinyisheng in China. The downstream are various cloud computing enterprises, telecom operators, and Internet enterprises.

In the first quarter of this year, the market research institution Omdia once stated that with the continuous increase in capital expenditures of cloud computing manufacturers, the data communication optical module market has grown for four consecutive quarters, and the proportion of annualized revenue in the optical module market has significantly increased from 46.1% in 2023 to 53.7% in the first quarter of 2024.

Xiang Ligang, an expert in the communication industry, told 36Kr that The transmission interface of the basic communication system requires optical modules, which is a major prerequisite for the stability of the optical module market. On this basis, the recent construction of intelligent computing centers has brought an incremental market to optical modules.

According to the research report of Tianfeng Securities, the core component that realizes the photoelectric conversion in the optical module is the optoelectronic chip. In terms of cost proportion, the optical chip usually accounts for 40% to 60% of the cost of the optical module, and the electrical chip accounts for 10% to 30%.

Judging from Marvell's financial report, although the overall revenue for the second quarter of fiscal year 2025 was $1.27 billion, it still declined by 5% year-on-year, and the total revenue in the previous quarter also decreased year-on-year.

However, more compelling evidence convinces the market that Marvell has a strong guidance for the next few quarters. The data center business is ready to welcome the upgrade cycle of AI and can make up for the decline in traditional businesses.

First, the certainty of demand is already reflected in Marvell's orders. In the second quarter of fiscal year 2025, Marvell's orders for 800G PAM products and 400ZR data center interconnect products were stable, and the company will increase the production of 800G DSP.

In addition, Marvell will increase the production of its 1.6T PAM4 DSP in the second half of fiscal year 2025, and the new generation of products will drive a faster growth trajectory.

In the previous earnings conference call, Nvidia CEO Jensen Huang confirmed that the Blackwell chip will begin mass production in the fourth quarter and start shipping in the fourth quarter. And market data shows that each device based on Nvidia's Blackwell platform requires approximately 9 1.6T optical modules.

Secondly, in terms of profit margin, according to Marvell's management's guidance for the third quarter of 2025, although the company expects adjusted operating expenses to increase by 2% sequentially, revenue is expected to increase by 14% sequentially.

Matt Murphy, Marvell's president and CEO, said in a conference call that the double-digit growth in the "cloud" business is sufficient to offset the decline in product chip sales in enterprises and local data centers.

Regarding the revenue that AI may bring, Marvell executives have made a very optimistic and bold prediction. At the AI Era event in April, Marvell stated that its AI connection sales in fiscal year 2023 were approximately $200 million, and this figure exceeded $550 million in fiscal year 2024. In the current fiscal year 2025, Marvell expects the total sales of its connection and custom computing business to exceed $1.5 billion, and it expects AI to drive sales to exceed $2.5 billion in fiscal year 2026.

02 Mergers and Acquisitions for Transformation

In fact, the popularity of DPUs is only a recent phenomenon in the past few years.

In 2019, Nvidia spent $6.9 billion to acquire the Israeli DPU chip manufacturer Mellanox. After repackaging the DPU concept, Nvidia launched its own DPU products the following year, and since then, the DPU concept has become popular, and data chips have begun to receive real attention.

At that time, Nvidia CEO Jensen Huang asserted that DPU will become one of the three pillars of future computing. The standard configuration of future data centers is CPU + DPU + GPU, where CPU is used for general computing, GPU for accelerated computing, and DPU for data processing.

Before the popularity of DPUs, the simplest way to solve the traffic problem between nodes in the industry was to increase the processing capacity of network cards.

Mellanox also once laid out network cards, but due to insufficient strategic capabilities, it missed the opportunity for further development and was eventually acquired by Nvidia. Another enterprise that laid out network cards early, Xilinx, was acquired by AMD in 2022.

At the same time, Marvell, which started with storage, also obtained the ticket to the AI era through a series of mergers and acquisitions to achieve the transformation to the communication infrastructure and high-performance computing market.

In 2016, Marvell changed its management. Two years later, Marvell acquired Cavium for $6 billion to lay out the DPU business.

Then from 2020 to 2021, Marvell made two more acquisitions, Inphi and Innovium. The former brought DSP and optical module businesses. After acquiring these two companies, Marvell not only has the ability to develop products such as switches for hyperscale data centers, but also has improved its data center and 5G interconnect businesses.

With the successive "big fish eating small fish" mergers and acquisitions cases, the割据 situation among communication industry giants has gradually stabilized. In this emerging chip track of DPUs, it is still the traditional giants such as Nvidia, Marvell, Broadcom, and AMD that play the leading roles.

When overseas manufacturers dominate the upstream optoelectronic chips, they have also driven a group of domestic optical module assembly factories to the international stage. Data shows that China has occupied seven of the top ten optical module manufacturers in the world, with a combined market share of more than 50%. Many manufacturers have successfully entered Nvidia's supply chain.

The three major optical module assembly factories led by Tianfu Communication, Zhongji Xusheng, and Xinyisheng have made rapid progress in the secondary market this year. Since the beginning of the year, Xinyisheng's share price has soared from 47 yuan to the latest 147 yuan, Zhongji Xusheng's has risen from 79 yuan to 168 yuan, and Tianfu Communication's has risen from 63 yuan to 104 yuan.

According to the financial reports, in the first half of 2024, Zhongji Xusheng achieved a net profit attributable to shareholders of 2.333 billion yuan, with a year-on-year growth of 300%; Xinyisheng's non-net profit after deduction was 865 million yuan, with a year-on-year increase of 204.5%; Tianfu Communication's non-net profit after deduction was 641 million yuan, with a year-on-year increase of 184.24%.

According to customs data, from January to May this year, China's total export of optical modules was 17.47 billion yuan, with a year-on-year growth of 80.1%. LightCounting predicts that the annual sales of optical modules will increase by 40% in 2024.

As assembly factories, the trends of the three major domestic optical module manufacturers, "Yizhongtian", are largely determined by upstream Marvell and Nvidia.

At present, as long as the capital expenditures of overseas cloud computing giants on servers do not slow down, Nvidia, Broadcom, and Marvell will still be able to benefit from the artificial intelligence arms race, and "Yizhongtian" will be able to follow and gain some benefits.

JPMorgan Chase previously pointed out that "In the next few years, the compound annual growth rate of servers will exceed 30%. And the artificial intelligence/machine learning switch will expand at a compound annual growth rate of 40% before 2027, which is an area where Broadcom (switching/routing) and Marvell (optical connection) have strong leadership."

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