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Can MRVL's AI Infrastructure Growth Outpace Its Margin Pressure?
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Key Takeaways
Marvell expects interconnect revenues to grow more than 70% year over year in fiscal 2027.
Optics growth is supported by TIAs, drivers, DCI modules and scale-up products ramping through fiscal 2028.
Data center revenues are expected to grow about 50% in fiscal 2027 despite ongoing gross-margin pressure.
Marvell Technology (MRVL - Free Report) has been an important benefactor of AI infrastructure capex buildout. Marvell Technology has been transforming itself into a key contributor to the connectivity hardware solutions for AI infrastructure and data centers. Marvell Technology now expects its interconnect business to grow more than 70% year over year in fiscal 2027, supported by scale-out PAM ramp-ups and scale-up and scale-across networking products.
Within optics, the company expects TIAs and drivers to exceed a $1 billion annualized run rate in the next few quarters and sees a path to about $1 billion annualized DCI module revenues during fiscal 2028. The company also expects scale-up optics to ramp up in fiscal 2028, reflecting broader adoption across engagements.
The company has also launched the Golden Cable initiative to accelerate and expand the Active Electrical Cable (AEC) ecosystem for faster deployment of AI infrastructure by cloud and hyperscaler customers. However, Marvell Technology’s move toward lower-margin custom silicon and other AI infrastructure products is resulting in a gradual decline in the gross margin.
In the first quarter of fiscal 2027, non-GAAP gross margin declined to 58.9% from 59.8% a year ago and 59% in the previous quarter. Despite the gross-margin pressure, Marvell Technology continues to generate substantial operating leverage. Non-GAAP operating margin expanded to 35% in the first quarter from 34.2% a year earlier. This indicates that rapid revenue growth is allowing operating expenses to grow more slowly than revenues.
The near-term gross-margin outlook remains stable rather than expansionary. For the second quarter of fiscal 2027, MRVL expects a non-GAAP gross margin of 58.25-59.25%. To conclude, gross-margin expansion is not the main earnings driver for Marvell Technology right now. MRVL is prioritizing rapid growth across custom silicon, optical interconnects and switching, with data center revenues expected to grow around 50% in fiscal 2027.
How Competitors Fare Against MRVL Stock
MRVL faces stiff competition in the AI networking and custom silicon space from Broadcom (AVGO - Free Report) and Advanced Micro Devices (AMD - Free Report) .
Broadcom is a leader in the domain of custom silicon solutions for data centers. Broadcom’s advanced 3.5D XDSiP packaging platform is critical to ensure the performance and efficiency of custom AI XPUs.
Advanced Micro Devices is another established player in the custom silicon solutions and AI accelerator market. Advanced Micro Devices offers semi-custom SoCs and Instinct Accelerators to power data centers.
MRVL's Price Performance, Valuation and Estimates
Shares of Marvell Technology have gained 188.7% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 51.2%.
MRVL YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, Marvell Technology trades at a forward price-to-sales ratio of 15.89X, lower than the industry’s average of 9.50X.
MRVL Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for MRVL’s fiscal 2027 and 2028 earnings implies year-over-year growth of 32.3% and 36.8%, respectively. Estimates for fiscal 2027 and 2028 have been revised upward in the past 30 days.
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Can MRVL's AI Infrastructure Growth Outpace Its Margin Pressure?
Key Takeaways
Marvell Technology (MRVL - Free Report) has been an important benefactor of AI infrastructure capex buildout. Marvell Technology has been transforming itself into a key contributor to the connectivity hardware solutions for AI infrastructure and data centers. Marvell Technology now expects its interconnect business to grow more than 70% year over year in fiscal 2027, supported by scale-out PAM ramp-ups and scale-up and scale-across networking products.
Within optics, the company expects TIAs and drivers to exceed a $1 billion annualized run rate in the next few quarters and sees a path to about $1 billion annualized DCI module revenues during fiscal 2028. The company also expects scale-up optics to ramp up in fiscal 2028, reflecting broader adoption across engagements.
The company has also launched the Golden Cable initiative to accelerate and expand the Active Electrical Cable (AEC) ecosystem for faster deployment of AI infrastructure by cloud and hyperscaler customers. However, Marvell Technology’s move toward lower-margin custom silicon and other AI infrastructure products is resulting in a gradual decline in the gross margin.
In the first quarter of fiscal 2027, non-GAAP gross margin declined to 58.9% from 59.8% a year ago and 59% in the previous quarter. Despite the gross-margin pressure, Marvell Technology continues to generate substantial operating leverage. Non-GAAP operating margin expanded to 35% in the first quarter from 34.2% a year earlier. This indicates that rapid revenue growth is allowing operating expenses to grow more slowly than revenues.
The near-term gross-margin outlook remains stable rather than expansionary. For the second quarter of fiscal 2027, MRVL expects a non-GAAP gross margin of 58.25-59.25%. To conclude, gross-margin expansion is not the main earnings driver for Marvell Technology right now. MRVL is prioritizing rapid growth across custom silicon, optical interconnects and switching, with data center revenues expected to grow around 50% in fiscal 2027.
How Competitors Fare Against MRVL Stock
MRVL faces stiff competition in the AI networking and custom silicon space from Broadcom (AVGO - Free Report) and Advanced Micro Devices (AMD - Free Report) .
Broadcom is a leader in the domain of custom silicon solutions for data centers. Broadcom’s advanced 3.5D XDSiP packaging platform is critical to ensure the performance and efficiency of custom AI XPUs.
Advanced Micro Devices is another established player in the custom silicon solutions and AI accelerator market. Advanced Micro Devices offers semi-custom SoCs and Instinct Accelerators to power data centers.
MRVL's Price Performance, Valuation and Estimates
Shares of Marvell Technology have gained 188.7% year to date compared with the Zacks Electronics - Semiconductors industry’s growth of 51.2%.
MRVL YTD Performance Chart
Image Source: Zacks Investment Research
From a valuation standpoint, Marvell Technology trades at a forward price-to-sales ratio of 15.89X, lower than the industry’s average of 9.50X.
MRVL Forward 12-Month (P/S) Valuation Chart
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for MRVL’s fiscal 2027 and 2028 earnings implies year-over-year growth of 32.3% and 36.8%, respectively. Estimates for fiscal 2027 and 2028 have been revised upward in the past 30 days.
Image Source: Zacks Investment Research
Marvell Technology currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.