Marvell is a stock we watch closely and a stock we ultimately want to own due to its abundant AI potential, yet the company’s AI potential is buried by other segments in a steep, cyclical trough. Looking ahead, next year has the makings of a solid comeback for this often-overlooked AI stock, with revenue growth set to return as early as Q3 before accelerating strongly in fiscal 2026 (CY2025).
Marvell reports fiscal Q2 earnings on August 29, with AI revenue at the forefront after management hinted at exceeding its previously set $1.5 billion AI revenue floor. This will be the key metric to watch alongside data center revenue, which is Marvell’s only end market segment with both YoY and QoQ growth at the moment. We see potential for ASICs to become a meaningful part of data center build-outs, with Big Tech touting performance and cost advantages from custom silicon hosted in the cloud, and we’re closely tracking both Broadcom as the leader and Marvell as the runner-up in the space.
Revenue
Marvell guided for $1.25 billion in revenue in the quarter, for a YoY decline of (6.5%) and QoQ growth of 7.8%. This is a notable acceleration from (12.2%) YoY in fiscal Q1, where Marvell reported $1.16 billion in revenue.
This acceleration is expected to persist through the second half of fiscal 2025, with consensus estimates for Q3 pointing to $1.41 billion, for a YoY decline of just (0.8%), a 570 bp acceleration from Q2, and QoQ growth of 12.8%. Q4 is currently estimated at $1.59 billion, for YoY growth of 11.5% and QoQ growth of 12.8%.
However, the real growth story lies in fiscal 2026, with Q1 through Q3 all currently estimated to record >30% YoY growth.
For fiscal 2025, Marvell is expected to report $5.4 billion in revenue, or a (2%) YoY decline. Revenue growth is expected to sharply accelerate to 32.2% YoY to $7.14 billion in fiscal 2026.
Key Metrics
As is the case with other AI semiconductors, Marvell’s data center segment drove Q1’s growth, nearly doubling YoY and the only end market segment with both YoY and QoQ growth. For a refresher on Marvell’s key products, refer to our prior analysis “Marvell: Tons of AI Potential Obscured by Underperforming Segments.”
Data center is Marvell’s strongest segment, with $816.4 million in revenue in Q1, up 87% YoY and up 7% QoQ. This came on the heels of another historic data center quarter of $765.3 million, up 54% YoY and up 38% QoQ. Management guided for mid-single-digit sequential growth in the segment as ASICs continues to ramp, implying revenue of ~$865 million in Q2 at ~6% QoQ growth. Electro-optics and interconnects were primary growth drivers in Q1, with initial custom silicon shipments starting, so we’re expecting to see more ASICs in the mix this quarter.
Outside of the data center, Marvell’s other segments are showing deep YoY declines.
- Carrier infrastructure revenue declined (75%) YoY and (58%) QoQ to $72 million in Q1, with Q2 guided to be near flat sequentially, with management saying the recovery will be harder to predict.
- Enterprise networking declined (58%) YoY and (42%) QoQ to $153 million in Q1, with Q2 similarly expected to be near flat sequentially, before recovering in the second half of this fiscal year.
- Consumer revenue declined (70%) YoY and (71%) QoQ to $42 million in Q1, dragged down from softness in the gaming market. However, management believes the gaming inventory correction has cleared, with the segment expected to double on a sequential basis in Q2.
- Automotive revenue declined just (13%) YoY and (6%) QoQ to $78 million, and once more is expected to be flat sequentially, with growth resuming in the second half of the fiscal year.
Margins
Margins are a bit lower historically as volume production of ASICs ramp this year, with management “expecting a very substantial ramp in the second half of this year, followed by a full year of high volume production in fiscal 2026.” This will weigh on gross margins in the near term, but will help to drive stronger operating margins, primarily due to non-recurring engineering costs.
Marvell guided for GAAP gross margin to be 46.2%, a 70 bp QoQ improvement from 45.5% in Q1 and a 730 bp YoY improvement. Adjusted gross margin was guided to be 62%, down 40 bp QoQ from 62.4% in Q1 but up 170 bp YoY.
Management provided some context on the path of gross margins, saying that the sequential decrease in adjusted gross margin stems from a shift in product mix as consumer revenue rebounds and ASICs ramp. Management added that the “substantial” ramp in H2 in ASICs “is likely to be dilutive to our current gross margins, but to be accretive to operating margin and earnings.”
GAAP operating margin for Q2 was guided at (8.8%), an improvement from (13.1%) last quarter and (15.3%) last year. While it is a step in the right direction, Marvell still has a lot of ground to cover to return to GAAP operating profitability. Adjusted operating margin is expected to be 25.6% in Q2, up 230 bp sequentially.
EPS
Though Marvell did not provide any guidance on net margins for Q2, we can infer from management’s EPS guides that net margin is likely to marginally improve sequentially.
GAAP EPS is guided to be ($0.20), +/- $0.05 for Q2, compared to ($0.25) in Q1, a slight improvement at midpoint, though the lower end of the range comes in line with Q1’s result.
Adjusted EPS is guided to be $0.29, +/- $0.05, compared to $0.24 in Q1, again a slight improvement at midpoint with the low end of the range being flat to Q1. This reflects a YoY decline of (11.1%), before improving to (7.5%) in Q3 and returning to bottom-line growth of 5.1% in Q4.
For FY2025, Marvell is projected to report $1.40 in adjusted EPS, for a YoY decline of (7.2%).
The real growth story for Marvell’s bottom line arises in FY2026, once ASICs reaches full volume production, as noted previously by management to be accretive to both operating margin and EPS. Q1 FY26 is currently estimated to see Marvell report nearly 108% YoY growth in adjusted EPS to $0.50.
On a full year basis, FY2026’s adjusted EPS growth is currently estimated at 71.9% YoY to $2.41, reflecting the significant operating leverage opportunity that lies ahead from ramping ASICs to full volume production.
Cash Flows and Debt
Cash flows have remained strong for Marvell despite the end market weakness in a majority of its segments aside from AI; however, debt is one concern as debt-to-EBITDA ratios are high.
Operating cash flow in Q1 was $324.5 million for a margin of 28%, while free cash flow was $232.5 million, for a margin of 20%. This is lower than usual due to annual employee cash bonuses.
Inventory was $826 million in Q1, decreasing $38 million QoQ and $200 million YoY. Days sales outstanding decreased 8 days to 69 days.
Cash and equivalents totaled $847.7 million at the end of Q1, down from $950.5 million at the end of the prior quarter, primarily due to the employee bonuses.
Debt totaled $4.15 billion. Marvell’s gross debt-to-EBITDA ratio at the end of Q1 was 2.27x and net debt-to-EBITDA was 1.8x.
What to Expect for AI Revenue
Marvell’s AI revenue will be closely watched in Q2, given that other AI semiconductors in AMD and Broadcom both recently raised AI revenue outlooks for this year. Marvell had guided for $1.5 billion in AI revenue exiting the fiscal year, setting a floor for next year at $2.5 billion.
Marvell had given clues that ASICs AI revenue is trending around $500 million per quarter in Q1, and offered more color on the full year outlook:
CEO Matt Murphy: “If you look at our Q2, most of the growth in the data center segment is coming from custom. So that's a positive. And then, the whole thing inflects meaningfully in the second half and I'd say from a full year perspective, the way to think about it, maybe some additional color would be, we talked about a floor of $1.5 billion for AI revenue for Marvell for this fiscal year with about two-third in electro-optics and a third in custom. And we see now both of those exceeding that number.”most of the growth in the data center segment is coming from custom. So that's a positive. And then, the whole thing inflects meaningfully in the second half and I'd say from a full year perspective, the way to think about it, maybe some additional color would be, we talked about a floor of $1.5 billion for AI revenue for Marvell for this fiscal year with about two-third in electro-optics and a third in custom. And we see now both of those exceeding that number.”
On the topic of AI revenue growth in fiscal 2026 (calendar 2025), management said:
“Our programs continue to kind of upsize in terms of the magnitude we're looking at. I'd just say we didn't give the breakout exactly for next year, but we did talk about incremental $1 billion is the floor for next year from this year, so going from $1.5 billion to $2.5 billion.we did talk about incremental $1 billion is the floor for next year from this year, so going from $1.5 billion to $2.5 billion.
And a lot of that is going to be due to the custom programs hitting their first full year of volume. So we're not calling out the exact split for next year, but maybe that will help you triangulate in the middle in terms of where we are today, where we're trying to drive the business and then also where we see the overall AI business for next year. “And a lot of that is going to be due to the custom programs hitting their first full year of volume. So we're not calling out the exact split for next year, but maybe that will help you triangulate in the middle in terms of where we are today, where we're trying to drive the business and then also where we see the overall AI business for next year. “
At the moment, analysts are already looking above that guided range. For example, JP Morgan believes Marvell’s AI revenues will easily surpass management’s $1.5 billion floor and rise to $1.6 to $1.8 billion in calendar 2024, before soaring more than 70% YoY in 2025 to $2.8 billion to $3.0 billion, as ASICs programs ramp at Amazon and later Microsoft.
Valuation
Marvell is currently trading above historical norms on top-line and bottom-line valuations, but it’s likely the market is pricing Marvell at this premium on expectations that custom silicon will ramp and accelerate ahead of schedule, and drive margin improvement and stronger bottom line growth.
Marvell is currently trading just above 11x sales, on both a TTM and forward basis, given the low growth environment for the current fiscal year. This is approximately a 30% premium to Marvell’s 3-year average forward revenue multiple of 8.6x; however, this 11x revenue multiple has been Marvell’s average for 2024.
On the bottom-line, Marvell trades near the higher end of its range over the past three years, given that margins down the line have struggled and not yet recovered. Marvell trades at nearly 50x forward adjusted EPS, much higher than its 3-year average of 34x. Marvell is expected to grow into this multiple in FY26 on the back of strong adjusted EPS growth as ASICs ramp.
Conclusion
On one hand, Marvell’s rebound and growth story might be too early, and there will be a couple of less-spectacular earnings reports until we get to the rebound in 2025. On the other hand, Marvell may start to move quicker than current consensus is forecasting as it’s participating in a few explosive trends, namely ASICs and data center optics.
How the market perceives Marvell’s non-AI segments until a material recovery arises is anyone’s guess. In a risk-on environment, these segments will be dismissed and the number of times a management team mentions the words “AI” on an earnings call is all that matters. In a risk-off environment, Marvell’s unfortunate exposure to telecom and gaming will mute upside. As it stands, we remain cautiously optimistic on Marvell.
We will cover the report for our premium members briefly BMO on Friday.
Damien Robbins, Equity Analyst at the I/O Fund, contributed to this article.
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