To The Moon

Marvell Technology posted robust quarterly results, yet the stock slipped in after-hours trading as investor expectations had been raised considerably, leaving the modest earnings beat insufficient to satisfy the market.

On August 27, after the US market close, Marvell Technology released its fiscal second-quarter report. Revenue rose 37% year-over-year to $2.74 billion, with adjusted earnings per share of $0.94, both slightly surpassing analyst projections.

The company guided third-quarter revenue to approximately $3.15 billion, well ahead of the $3.03 to $3.04 billion that analysts had previously modeled.

Despite this, the stock initially dipped around 1.7% in extended trading before recovering to a slight gain. Notably, prior to the earnings release, Marvell Technology's share price had already advanced 184% since the start of the year.

Where to begin

Marvell Technology stands as one of the core beneficiaries of the current artificial intelligence trading wave, engaging in both custom chip design and supplying optical networking interconnect technology for AI server clusters. However, with AI-related trades experiencing a pullback in recent weeks, investors clearly held elevated expectations, and the marginal earnings beat was insufficient to boost confidence.

Data center segment powers growth with accelerating revenue

Marvell Technology's fiscal second-quarter data center revenue jumped 46% year-over-year to $2.2 billion, serving as the primary growth driver for overall performance. Communications and other business segments generated $567.8 million in revenue, up 10% from the prior year.

On the profitability front, net income reached $865.9 million, exceeding the analyst consensus of $852 million. Adjusted earnings per share came in at $0.94, representing a roughly 40% increase from $0.67 in the same period last year and modestly above the market's expected range of $0.92 to $0.93.

Regarding margins, non-GAAP gross margin stood at 58.9%, down 50 basis points year-over-year, while GAAP gross margin improved by 270 basis points to 53.1%.

Q3 outlook exceeds expectations as custom business accelerates

Marvell Technology projects fiscal third-quarter revenue of approximately $3.15 billion, plus or minus 5%, significantly surpassing the $3.03 to $3.04 billion analysts had forecast. The adjusted earnings per share guidance of $1.10, plus or minus $0.05, also tops the market's expectation of $1.07 to $1.08.

The company also guided fiscal third-quarter GAAP gross margin in the range of 52.9% to 53.9%, with non-GAAP gross margin between 57.5% and 58.5%. GAAP operating expenses are expected to be around $1.02 billion, while non-GAAP operating expenses are projected at approximately $655 million.

Marvell Technology Chief Executive Officer Matt Murphy stated in the earnings release: "We are seeing broad-based growth across our data center portfolio, including strong demand for our interconnect products, as well as a significant ramp in our custom programs beginning in the second half of fiscal 2027."

Last week, Google secured warrants to purchase $12.2 billion worth of Marvell Technology shares, which propelled the stock higher. The two companies maintain close collaboration on Google's AI tensor processing unit (TPU) initiatives, a partnership that further solidifies Marvell Technology's custom chip design business.