Key insights
- Marvell Technology (MRVL) reported strong fiscal Q1 results and significantly raised its revenue outlook for the next two years, projecting 40% growth to nearly $11.5 billion for the full year and 45% growth to $16.5 billion in fiscal 2028. This bullish outlook is driven by custom AI chips and optical data center components, with the data center business expected to grow 50%. The company's strong performance and positive guidance for key growth areas suggest a potential positive impact on the broader semiconductor sector and technology stocks.
Marvell Technology (MRVL +0.08%) has been one of the hottest stocks in the market this year, with its shares up 141% year to date, as of this writing. After significantly raising its revenue outlook for the next two years, the question is whether the semiconductor stock can continue its strong performance.
Let's dig into its fiscal first-quarter results and prospects to see if the stock is still a buy.
Marvell is riding two powerful trends with custom AI chips and optical data center components. It provides some important intellectual property (IP) for Amazon's Trainium chip and has also helped Microsoft develop its new Maia chip. It's also a leader in optical interconnects, providing critical networking connectivity for AI data centers.
In fiscal Q1, Marvell's fiscal Q4 revenue jumped 28% year over year to $2.42 billion. Data center revenue increased by 27% year over year in the quarter to $1.83 billion, while communication segment revenue climbed 29% to $585 million. Its adjusted earnings per share (EPS) rose 29% from $0.62 a year ago to $0.80. Those results were slightly ahead of the midpoint of management's outlook for adjusted EPS of $0.79 on revenue of $2.4 billion.
Looking ahead, Marvell is projecting fiscal Q2 revenue to grow 35% year over year to around $2.7 billion. It guided for adjusted EPS to be $0.93, up from $0.67 a year earlier.
For the full year, the company significantly upped its forecast, guiding for revenue to grow by 40% to nearly $11.5 billion. That was up from a prior outlook of $11 billion in sales, representing 30% growth. The growth is expected to be driven by its data center business, with revenue now anticipated to climb by 50%, up from an earlier 40% growth outlook. Within that segment, its interconnect business is forecast to surge by 70%, above its prior 50% projection.
This momentum is expected to continue in fiscal 2028, with Marvell projecting 45% revenue growth to $16.5 billion, above its prior $15 billion outlook. It expects its custom chip business to double.
Marvell's networking connectivity business, particularly interconnects, is seeing strong and increasing momentum, while its AI ASIC (application-specific integrated circuit) business is projected to see a huge lift next year. Meanwhile, the company's IP with SRAM (static random-access memory), which is the memory used in Nvidia's language processing unit and Cerebras' chips for inference, could become a nice growth driver down the line. However, there are some longer-term questions surrounding its Amazon chip business, with Taiwanese company AIchip reportedly fighting to capture more IP content.
The stock currently trades at a forward price-to-earnings (P/E) ratio of 37 times fiscal 2028 analyst estimates, which is a huge jump from earlier this year. Given the Amazon uncertainties, I'm not chasing the stock here, even though I do like its positioning in interconnects.