To The Moon

Marvell Earnings Preview: Can XPU and Interconnect Break Through the Vacuum?

Global AI interconnect chip giant $Marvell Technology(MRVL)$   is set to report its FY2026 Q4 earnings after the market close this Thursday. Last quarter, the company guided that its XPU business would ramp meaningfully in FY28, and the market largely accepted that timeline. However, the period between now and FY28 remains an earnings vacuum, making it critical to watch whether management upgrades its guidance this time around.

Q4 Core Financial Indicators

– Revenue consensus stands at $2.26 billion, up 21% year over year and 6% quarter over quarter. The company's prior guidance was $2.2 billion.

– GAAP gross margin consensus is 51.3%, up 0.8 percentage points YoY but down 0.3 percentage points QoQ, versus the company's guided upper bound of 52.1%. Non-GAAP gross margin consensus is 59.1%, down 1 percentage point YoY and 0.6 percentage points QoQ, against the company's guided upper bound of 59.5%.

– GAAP net income consensus is $297 million, up 48% YoY, compared to the company's prior guided upper bound of $309 million. Non-GAAP net income consensus is $678 million, up 28% YoY, versus the company's prior guided upper bound of $677 million.

Option Market Signals

With Marvell's earnings due after Thursday's bell, the options market is pricing in a hefty move as implied volatility sits at 74.05%, nearly doubling the 44.22% historical volatility and ranking at the 85th percentile, indicating premiums are richer than they've been for most of the past year. 

The overall put/call ratio stands at an elevated 1.25 across 947.93K open interest contracts, reflecting a cautious hedging bias, yet the March 6 weekly chain tells a more nuanced story: call open interest of 26.78K decisively outweighs 18.38K in puts, with a massive 25.67K calls positioned out of the money and volume clustering around the $77 to $85 strike zone, suggesting traders are stacking leveraged upside bets while a notable pocket of in the money put open interest at 5.52K points to institutional downside protection anchored near the mid-70s as the Street braces for the latest read on Marvell's AI and custom silicon trajectory.

Three Things to Watch

AWS Trainium 3 demand is on the table. Can it break the XPU slump?

Last quarter, management projected FY27 data center revenue growth of 25%. The interconnect business (roughly 50% of total data center revenue) is expected to continue growing faster than cloud capital expenditures. The custom silicon business (roughly 25% of total data center revenue) is expected to grow 20%, with the ramp concentrated in the second half of the fiscal year with no gap in between.

As for the market's top focus, the $Amazon.com(AMZN)$   AWS Trainium 3 orders, management stated last quarter that it had secured all currently forecasted purchase orders for the next-gen XPU program (AWS Trainium 3) for the coming fiscal year. However, the guided 20% growth in FY27 data center custom business doesn't quite square with Amazon's own indication that Trainium 3 production volumes will ramp significantly next year. This mismatch may be tied to Alchip capturing a larger share of Trainium 3 orders. In fact, FY27 custom business growth is projected to trail overall data center growth.

With Amazon recently accelerating its AWS Trainium deployment and landing a massive 2GW deal with OpenAI, whether Marvell's market share and per-unit value in Trainium 3 can break the prolonged weakness in XPU still awaits answers from management.

Can the storage business benefit from the industry supercycle?

Marvell's current storage product portfolio includes HDD controllers, SSD controllers, SSD converter controllers, and Fibre Channel HBAs & controllers. Beyond data center applications, these products also serve consumer electronics. Since FY22 Q3, Marvell has stopped disclosing storage revenue separately. Prior to that, the business was running at roughly $1.2 billion annualized. If this segment can ride the storage industry's pricing supercycle, it could contribute meaningful incremental upside to Marvell's overall results.

During last quarter's earnings call, management made no specific mention of storage tailwinds, only noting that data center storage revenue grew by double digits sequentially. Watch whether this becomes a bigger variable this quarter.

Will the long-term outlook for optical interconnect and XPU-attach custom chips be raised?

Marvell's full suite of optical and electrical interconnect products includes DSPs for active electrical cables (AEC) and active optical cables (AOC), retimers for PCIe, Ethernet, and UA Link, as well as silicon photonics for near-packaged and co-packaged XPU optics.

Currently, Marvell's data center revenue growth is primarily driven by its optical and electrical interconnect products. The company previously stated that interconnect products account for about 50% of data center revenue, with ASICs at roughly 25%. The remainder comes from data center storage, switching, and security product portfolios. The data center switching business is expected to exceed $300 million in revenue this fiscal year, with strong demand for 12.8T products and initial shipments of the next-gen 51.2T products. A robust ramp is anticipated in FY27, with switching revenue expected to surpass $500 million. AEC active cables and retimers have emerged as new interconnect growth drivers, and the company expects to continue gaining market share, with combined AEC and retimer revenue on track to double in FY27. Management estimates the merchant scale-up switch market will reach approximately $6 billion by 2030. When optical interconnect attach is layered across both XPU and switch sides, the total interconnect TAM could exceed $10 billion.

Contrary to the prevailing market view that Marvell's custom business is primarily an XPU story, management disclosed that the company has now won over 15 XPU-attach chip designs. Based solely on design wins in NIC and CXL use cases, these wins could generate over $2 billion in revenue by FY29.

Summary

Overall, the current U.S. equity market sets a high bar for semiconductor earnings, demanding favorable gross margin trends, meaningful guidance raises, and robust order backlogs. This is especially relevant for $Marvell Technology (MRVL.US)$ given the extended earnings vacuum leading up to FY28.

Looking back at stock price movements across the past eight earnings days, shares closed higher on only three of those occasions.

@TigerStars  @CaptainTiger  @TigerWire  @Daily_Discussion  @Tiger_chat  @Tiger_comments  @MillionaireTiger