Marvell reported in line results with Q4 revenue that grew by 27.4% YoY and 19.9% QoQ to $1.82 billion, beating estimates by 1.2%. Adjusted EPS grew by 30.4% YoY to $0.60, beating estimates by 1.6%.

Management guided Q1 revenue of $1.875 billion, representing a YoY growth of 61.5% YoY and 3.2% QoQ at the midpoint, beating estimates modestly by 0.3% and expects adjusted EPS to grow 154.2% YoY to $0.61, beating estimates by 1.7%.

The company’s margins have improved from negative GAAP operating margin (often double-digit negative) to 12.9% in the most recent report. The adjusted operating margin of 33.7% was flat but on higher revenue, resulting in adjusted EPS that grew 40% sequentially.

The market is going through a phase of AI capitulation. Our site is particularly helpful here as Knox sets out price targets months in advance on his webinar for AI stocks, offering two scenarios – a pullback scenario and a breakout scenario. The AI selloff is behaving according to the scenarios he set forth months ago.

But for now, it’s retail against the Street. The Street is confusing narratives, lowering price targets despite blowout earnings (those lowered price targets are 100% above the price in some cases), and more specifically to Marvell, stating Amazon Trainium revenue should have been higher. Management stated AI revenue was substantially above the $1.5 billion target for FY2025, and they expect to exceed the $2.5 billion target in FY2026 significantly. The overall revenue growth accelerated in the second half of the year, driven by the custom silicon program ramps along with continued strong growth in Electro-Optics. However, these numbers have not changed for a few quarters now (the above $1.5B and $2.5B) and I’m sure the Street wanted more in terms of a new number given the 5-year deal with Amazon, implying Trainium2.

Although Marvell’s quarter was not a blowout, with some readthroughs being the Amazon deal is not as strong as expected, inventory is up 20% QoQ compared to 3% QoQ revenue guide, and management stated they are in “significant volume production ahead.” Overall, I’ve seen supply taking longer this quarter, thus within the framework of what I’ve seen, Q4 reports and Q1 guides are an air pocket of sorts across the board. Ultimately, there is $300B in capex saying the air pocket will resolve in the (patient) AI investor’s favor.

Hopefully, the multi-dimensional approach we offer by combining fundamentals and technicals – not only for lower entries that are discussed months in advance but also going so far as to hedge up to 100% of our portfolio — has proven its value over the past few months. Marvell is the most over-sold its been in its history – that is what is meant by capitulation. A bounce in price is on the horizon.

Revenue growth Headed to 61.5% Next Quarter

The company’s Q4 revenue grew by 27.4% YoY and 19.9% QoQ to $1.82 billion, driven by strong AI demand, beating estimates by 1.2%.

Management guided Q1 revenue of $1.875 billion, representing a YoY growth of 61.5% YoY and 3.2% QoQ at the midpoint, beating estimates modestly by 0.3%
Analysts expect revenue to grow 55.9% YoY to $1.98 billion in Q2 and 39.1% YoY to $2.11 billion in Q3.

FY2025 revenue grew by 4.7% YoY to $5.77 billion.
Analysts expect FY2026 revenue to grow 42.3% YoY to $8.21 billion and 20.5% YoY to $9.89 billion in FY2027.

Margins – GAAP Profitable

The company exceeded its margin guidance in Q4, driven by operating leverage, and achieved GAAP profitability. Management expects GAAP profitability to continue during FY2026.

Q4 gross margin was 50.5% compared to 46.6% in the same period last year. Gross margin was slightly above the guidance of 50%. Management guide for Q1 is 50.5%.
Adjusted gross margin was 60.1% compared to 63.9% in the same period last year. Management guide for Q1 is 60%.
Q4 operating margin was 12.9% compared to (-2.3%) in the same period last year. It was above the guidance of 10.6%. Management guide for Q1 is 12.5%.
Adjusted operating margin was 33.7% compared to 33.8% in the same period last year. Managment guide for Q1 is 34%. Management expects strong operating leverage to continue in FY2026 and expects to make significant progress towards the long-term non-GAAP operating margin target of 38% to 40%.
Q4 net income was $200.2 million or 11% of revenue compared to a net loss of ($392.7 million) or (-27.5%) of revenue in the same period last year. Adjusted net income was $531.4 million or 29.2% of revenue compared to $401.6 million or 28.2% of revenue in the same period last year.
The difference in the GAAP net income and non-GAAP net income was due to stock-based compensation of $147.6 million or 8.1% of revenue and amortization of acquired intangible assets charge of $169.5 million or 9.3% of revenue.

Adj.EPS grew by 30.4% YoY and 39.5% QoQ

Q4 GAAP EPS was $0.23 compared to (-$0.45) in the same period last year. Q4 adjusted EPS grew by 30.4% YoY and 39.5% QoQ to $0.60 driven by operating leverage, beating estimates by 1.6%.

Management expects Q1 GAAP EPS of $0.19 and adjusted EPS to grow 154.2% YoY to $0.61, beating estimates by 1.7%.
Analysts expect Q2 adjusted EPS to grow 121.6% YoY to $0.66 and 69.5% YoY to $0.73 in Q3.
Analysts expect FY2026 adjusted EPS to grow 77.5% YoY to $2.79 and 31.8% YoY to $3.67 in FY2027.

Cash Flow and Balance Sheet

The company’s cash flow margin was lower due to the increase in inventories to support the strong expected growth.

Q4 operating cash flow margin was 28.3% compared to 38.3% in the same period last year.
Q4 free cash flow margin was 24.4% compared to 32.6% in the same period last year.
Cash was $948.3 million and debt of $4.06 billion compared to $868.1 million and $4.1 billion at the end of Q3.
The company paid $52 million in dividends and repurchased shares worth $200 million in Q4.

Management mentioned that they received an upgrade to investment grade credit rating from Fitch which is positive as it helps the company to refinance its high debt with better terms in the future. The company’s CFO Willem Meintjes said in the earnings call, “We were pleased to receive an upgrade to our investment grade credit rating from Fitch in January, citing their positive outlook on Marvell's strong operating momentum from robust data center demand, structurally improved leverage metrics, strong market position and strengthened cash flow profile.”

Inventories increased to $1.03 billion from $859 million in Q3, up 19.9% sequentially to support the strong expected growth.

Key Segments

Data Center 78% YOY and 24% QOQ

The company achieved record Q4 revenue of $1.37 billion, growing 78% YoY and 24% QoQ. The strong results were driven by the custom AI silicon programs ramping to high volume production. Additionally, the company also benefited from strong shipments of Electro-Optics products and Teralynx Ethernet switches with revenue from both product lines growing double-digits sequentially on a percentage basis. Management pointed toward the 800G PAM4 products as being the workhorse in its electro-optics products. Marvell is also at the leading edge of 1.6T PAM DSPs and will be first to introduce the 3nm 1.6T DSP with 200G per lane.

AI Revenue Commentary

Management mentioned that AI revenue was substantially above the $1.5 billion target for FY2025, and they expect to exceed the $2.5 billion target in fiscal 2026 significantly. The overall revenue growth accelerated in the second half of the year, driven by the custom silicon program ramps along with continued strong growth in Electro-Optics.

Here is what was said in the opening remarks:

“We ended the year with our AI revenue substantially above our $1.5 billion target from April 2024's AI Day and we also expect to very significantly exceed our $2.5 billion target in fiscal 2026.” It was later stated: “Last year, we had talked about $1.5 billion. We blew through that — this year, again, we anticipate being substantially above that. I'm not putting a number on it just yet. I think that there's a lot to go here in terms of the momentum in the business and the opportunity set in front of us. And so we're, right now, we're kind of keying off the last update we did, which was in the AI Day from last year and then we'll find the right appropriate time in the future.”

Carrier Infrastructure

Carrier Infrastructure Q4 revenue was down (-38%) YoY and up 25% QoQ to $105.8 million. Revenue accelerated from the (-73%) YoY decline and 12% sequential growth in Q3.

Enterprise Networking

Enterprise Networking Q4 revenue declined by (-35%) YoY and up 14% QoQ to $171.4 million. Revenue accelerated from a decline of (-44%) YoY and flat QoQ in Q3. The company witnessed continued recovery in both Carrier Infrastructure and Enterprise Networking with revenue collectively growing 18% sequentially. Management expects aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially by approximately 10% in Q1.

Consumer End Market

Q4 Consumer End Market revenue declined by (-38%) YoY and (-8%) QoQ to $88.7 million. For Q1, due to seasonality in gaming demand to expected to drive a sequential decline of (35%) in the consumer end market. Over the next several years, management expects the consumer end market revenue to be approximately $300 million on an annual basis.

Automotive/Industrial

The automotive/industrial revenue grew by 4% YoY and 3% QoQ to $85.7 million in Q4. The management expects continued sequential growth in the automotive end market. However, this growth will be more than offset by a decline in revenue from the industrial end market, where order patterns can be lumpy in any given quarter. As a result, they expect the overall revenue from the auto and industrial end market to decline sequentially in the high-single-digits on a percentage basis for Q1.

China Revenue

Marvell has a high China revenue concentration. It constituted 43% of revenue in Q3 and 45% for the nine months ending Q3. There was no mention of China during the recent earnings call, and we need to wait for the 10-K report to know the latest percentage of revenue from China. The high revenue concentration is a concern, notably since the recent tariffs increased from 10% to 20%.

Earnings Call:

XPU Design Discussions (Likely Amazon)

Regarding the custom design projects, Marvell stated the following in the opening remarks: “Let me now turn to our current custom silicon programs. Marvell has successfully ramped highly complex 100 billion plus transistor XPUs and CPUs from initial samples to high volume production on first pass silicon […] As I mentioned, our two leading AI custom programs are in high volume production, and we expect growth to continue. One of these is a custom ARM CPU, which we expect we'll see expanding adoption in our customers' data centers. The second program is for a custom AI XPU, which is also performing extremely well with significant volume production ahead. In parallel, we are fully engaged with this customer on the follow-on generation of this XPU and planning for a production ramp once it completes its sampling and qualification cycles. As a result, we expect our revenue from custom XPUs for this customer to not only grow this year, fiscal 2026, but continue to grow next year fiscal 2027 and beyond.”

There is a second hyperscaler, perhaps Meta, with potential “to start production in calendar 2026.”

In the call, analysts asked more about the lead customer. From the Q&A discussions below, I did not have a readthrough that Marvell lost Amazon’s Trainium2 business:

Harlan Sur

Hey, good afternoon guys. Thanks for taking my question. Great to see that you captured the follow-on AI XPU program after your current XPU program, which is ramping now with your major cloud and hyperscale customer. Matt, just to clarify. So is the new follow-on XPU program, a training XPU as well? Is that a calendar '26 ramp? And is that at 5-nanometer or 3-nanometer? Any more color there would be helpful. And then for Willem, your inventories were up 20% sequentially, which in a strong demand and product cycle environment like typically implies strong future growth, but you compare that to the 3% sequential total revenue guide for April. There seems to be some disconnect. So the way to interpret this is that the 20% sequential growth in inventories is more reflective of the AI strong growth profile ahead for the team?

Matt Murphy

Yes, I'll start off, Harlan. So, yes, so couple of things. So again given the confidentiality wrapper we've got, here we go. The first is you should assume this is a — it's a very high volume program and it's a continuation of what we're doing. It on the — and you should assume just in general, on every next generation type of device, you're going to see no transitions and technology advancements as you go forward. So you should assume that. And then also on a timing perspective, all I can say there is we'll be ready to ramp when it's time, and we'll manage that transition. We're very confident in our ability to manage that transition successfully with our customer, but that timing is something that we're just going to have to see when that's ready and we'll time it around that. And I can't really comment on what my customer plans are in this kind of detail, they just don't like it, and I don't blame them. And I'll give — I'll let Willem take the inventory question. Thanks.

Note: the answer above is about the next program which management is reluctant to discuss due to confidentiality

While the above quote was clear that another analyst was not expressing concerns about the loss of the lead customer (quite the opposite), it was perhaps even more clear on management’s side in this fairly long exchange:

Ben Reitzes:

Hey, guys. Thanks for the question and thanks for the intermission there in the middle. That was a nice break. The question that I have is with regard to sequential growth, Matt, and then a long-term question. Did you clarify that AI revenue could grow sequentially through the year? And did — when Tim asked his question earlier? And if so what's your confidence? And then if you could just kind of step back also, Matt, a lot of noise due to the speculation around that customer and content there. But when you step back, you have a goal of $15 billion for the data center long-term by calendar year '28 are you seeing the progress in your custom business still to hit that number because nobody on the street is even close to that. Thanks.

Matt Murphy:

Yes, Ben, thanks for the questions. So, yes, on the assumptions through the year, yes, I didn't, I think what I said was in Q1 our data center business ex the on-prem stuff was going to be up double-digits, coming off of overall data center like 25% a quarter sequentially. So I didn't comment throughout the whole year, but you should just you should just assume. It's not a bad assumption, right, or would be a fair assumption to think that it's obviously going to continue given the strength in the business and the momentum that we're seeing and just from what we're looking at from a year-over-year perspective. On the long-term, I think we're tracking extremely well to our 20% market share number. When we look back to kind of calendar '23 and then '24 and '25 and you start bouncing it up against what we said at the AI day. I think it looks very favorable. We're definitely gaining share from '23 to '24 and we'll definitely gain more share from '24 to '25. And so to get to that revenue target, you got to get there both ways. You got to grow the share, right, from kind of 10%, let's call it to 20%. And then the market's got to develop, right, obviously. You got to get to the sort of $75 billion TAM, but both of those are trending in a very positive direction. In fact, certainly in '24 and even in '25 is just kind of big round numbers, it looks like both the market and our growth, if you just bounce it up against sort of what's the compounded growth rate you needed from '23 to '28, it's actually growing above that right now. So now when we're in ramp phase, but that's going to continue. So I think we're in very good shape in terms of where we're tracking from a market share perspective. And certainly, if the market, by the way, is bigger. I mean remember, we gave that point of view in April of last year. And the world has changed then since then in terms of the absolute CapEx that's being deployed, certainly, even in recent months, all of the various programs from all the different key players and the potential of what's out there, sovereign programs, government programs, programs from new entrants. So we just see this — we just see the — quite frankly the TAM and the opportunity for Marvell, if anything, being way larger than it was when we looked at it almost a year ago. So all those make me feel very good about the market size developing and then certainly our progression on the market share. And you're right, that would be, it'd be an absolute home run to get there. And that's what me and my team are absolutely driving in this company day in and day out is drive the market share and help create the market, help make the TAM happen and execute like crazy and do it in a very focused manner, which is also why we reorganized the company with a dedicated data center engineering and business group to drive it. So I think the setup is really good. Thanks.

Networking Opportunity Expands TAM

We’ve covered Marvell’s networking products in great detail for six years now in previous analysis – this one is the most current. It’s a toss up as to whether Marvell’s custom silicon or networking opportunity will end up being the bigger market in a few years' time.

What was most interesting was that management discussed networking being incremental TAM to what was discussed above on custom silicon.

“The key thing I want to stress to you and to the investors on the call is this is incremental TAM the scale-up opportunity. We flagged it a few different times is right for sort of a TAM expansion. And it looks like that's what's going to play out at some point here. So that is all incremental. That's not, hey, if that happens and all of a sudden, Marvell's DSP revenue goes down or something like the scale up and this type of connectivity that is a revenue upside, market upside type of opportunity. So that one, I think, is — we're very excited about.”

Conclusion:

Despite design companies being in Nvidia’s shadow, Marvell put up a decent report. The company started the year at a run rate of $4 billion-ish and is now on a $7.5 billion run rate. They stated 75% of their revenue is from data center (this includes AI and on-prem, etc). Each investor will need to decide for themselves if the commentary or fundamentals reflects a weaker lead customer (Amazon). That’s not my readthrough from this report.

However, Marvell has higher debt and higher China revenue than our other semis, and that’s why we aren’t buying the report. We prefer to build other positions with less risk in these two areas, while acknowledging Marvell remains a strong AI contender – for both custom silicon and networking.

With that said, Marvell has never been more over-sold (technicals-wise) and is due for a bounce. Here is the note I got from Knox this morning, he will elaborate more in today’s webinar:

“Marvell has been trading for over 25 years. In this period, we have only seen the current level of oversold conditions 3 other times – 7/9/02, 10/9/08, 8/2/10. The first 2 were toward the tail end of bear markets: the period in 2022 period was followed by a +50% rally, before turning lower, while the period in 2008 was followed by a +20% rally in a short amount of time before eventually finding a bottom. The third period was not during a bear market and led to a +50% rally over the span of 6 months, before turning lower.”

Royston Roche, Equity Analyst at the I/O Fund, contributed to this article.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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