Marvell Technology: Cloud Giants Spend Generously, Why Didn't ASIC Benefit?

Marvell Technology, Marvell, released its financial report for the second quarter of fiscal year 2026 (ending July 2025) in the early morning of August 29, Beijing time, after the U.S. stock market closed:

1. Revenue: This quarter's revenue was $2.01 billion, a quarter-on-quarter increase of 5.8%, in line with market expectations ($2.01 billion). The quarter-on-quarter increase of $110 million was mainly driven by data center and consumer businesses. The consumer business was driven by a recovery in demand in the gaming market, while the growth in the data center business was primarily driven by AI business and electro-optical interconnect products.

2. Gross Margin: This quarter's gross margin was 50.4%, remaining roughly flat quarter-on-quarter. Due to the impact of amortization of acquired assets on $Marvell Tech(MRVL.US)'s gross margin, the gross margin in the financial report does not directly reflect the operating situation. After excluding this impact, Dolphin Research references the adjusted gross margin, showing the company's adjusted gross margin for this quarter at 58.7%. The overall gross margin of the company shows a downward trend due to the relatively low gross margin of custom ASIC and related businesses.

3. Data Center Business: A key focus of the market. This quarter's revenue was $1.49 billion, a quarter-on-quarter increase of 3.5%, mainly driven by the AI business, with the data center business accounting for 74% of the total. Dolphin Research estimates the company's AI business revenue for this quarter to be approximately $860 million, a quarter-on-quarter increase of $30 million. The company is currently in a gap period for new custom ASIC products, with revenue still mainly coming from old products mass-produced in 2024, and AI revenue growth continues to slow.

4. Next Quarter Guidance: Revenue of $2.06 billion, in line with market expectations ($2.12 billion), with quarter-on-quarter growth mainly from the recovery of enterprise network and carrier infrastructure businesses, data center revenue is expected to remain flat quarter-on-quarter; gross margin (GAAP) is expected to be 51.5-52%, an increase quarter-on-quarter, mainly due to the structural impact of a quarter-on-quarter decline in custom ASIC business next quarter.

Dolphin Research's Overall View: Weak Guidance Shatters Market Confidence

Although Marvell Technology's financial report for this quarter was generally in line with expectations, the weak guidance for the next quarter directly affected market confidence.

Breaking it down, Dolphin Research notes that the $60 million quarter-on-quarter increase in the company's next quarter revenue guidance will mainly come from the recovery of enterprise network and carrier businesses. After the continuous narrowing of quarter-on-quarter growth in the data center business, it is expected to remain flat next quarter, which severely impacts the company's growth prospects.

In the data center business, the market-focused custom ASIC business is expected to decline quarter-on-quarter next quarter. The current revenue of the custom ASIC business mainly comes from Amazon's Trainium2 and Google's Axion CPU products, which were mass-produced in 2024, while the product for the third customer, Microsoft, will not be mass-produced until 2026. Although the company's custom ASIC business is in a new product vacuum period, the guidance for a quarter-on-quarter decline, given the increased capital expenditure by major manufacturers, is disappointing.

Previously, Marvell held a custom ASIC chip launch event in June, focusing on two major changes:

a) TAM (Total Addressable Market) for Data Center Business: The company raised its 2028 forecast from $75 billion to $94 billion (with the custom ASIC market forecast increased from $43 billion to $54 billion);

b) Customers for Custom ASIC Business: In addition to stable cooperation with three core cloud service giants (Amazon, Microsoft, Google), the company has added two new emerging hyperscale data center manufacturers with AI ASIC XPU needs;

Considering (a+b), both the upward revision of future expectations and the increase in the number of custom ASIC customers have provided market confidence support, with the company's stock price rising to around $80 after this AI Day.

Following the second-quarter financial report, cloud service giants successively increased capital expenditures, and the company's stock price once reached $85, but it was still difficult to stay above $80. This is mainly because Marvell is not the preferred partner in the AI chip market and also faces competition from Alchip.

However, the "weak" guidance given after this financial report further confirmed two concerns:

On one hand, from the perspective of customer product release rhythm, the company's current custom ASIC revenue still mainly comes from Amazon's Trainium2 and Google's Axion CPU products, both of which started mass production ramp-up in 2024. While the third customer, Microsoft's Maia new product, needs to wait until 2026 to start mass production, the custom ASIC business lacks highlights in the second half of the year without new product support.

On the other hand, facing competition from Alchip, Amazon's Trainium chip is currently the main revenue source for the company's custom ASIC business. However, there is still controversy over the supplier of Amazon's next-generation Trainium 3 chip, and the company has not yet clearly disclosed relevant information. If Trainium 3 ultimately loses the order, the company's custom ASIC capabilities will be further questioned.

Considering the current market value ($66.6 billion), corresponding to the company's fiscal year 2027 net profit of approximately 34 times PE (assuming revenue +28%, gross margin 52.4%, tax rate 15.8%). Compared to Nvidia's current approximately 29 times PE for fiscal year 2027, Marvell's higher valuation reflects the market's higher growth expectations for the company's custom ASIC business and its pursuit of AI chip market share.

Since Marvell's products have already entered the AI chip market of cloud giants, it will also benefit from the boost of increased capital expenditure by major manufacturers. However, it is worth noting that Marvell is still a secondary choice behind Nvidia and Broadcom in AI chip procurement and faces competition from Alchip in major customer products, making Marvell's performance certainty relatively weak.

Although Marvell provided a more optimistic outlook at the previous AI Day, the support for the stock price still requires the company to deliver more practical performance and information, such as exceeding expectations in Microsoft's new product progress and a definitive response to new products like Amazon's Trainium 3. After such a "poor" guidance expectation this time, while causing a decline in stock price, the market will also reconsider how much of Marvell's promising vision can actually be realized.

Dolphin Research's detailed analysis of Marvell Technology (MRVL.O) financial report is as follows:

I. Marvell Technology Business

Marvell Technology started with storage technology and later expanded its business through a series of "external acquisitions," with data center business becoming the company's largest revenue source.

Specific business situation:

1) Data Center Business (approximately 75%): A high-growth business benefiting from the demand for data centers and ASICs, it is the main focus of the current market. The business includes electro-optical interconnect products, SSD controllers, custom ASIC business (custom chips for Amazon AWS, Google Axion CPU, etc.), mainly applied in cloud servers, edge computing, and other scenarios;

2) Other Businesses (approximately 25%): Starting from the third quarter, "enterprise network, carrier infrastructure, consumer, automotive + industrial" will be integrated into the "communication and others" segment. Among them, ① Enterprise network and carrier infrastructure business showed a significant decline after large-scale 5G infrastructure; ② Consumer electronics business is affected by downstream electronic products and home broadband demand; ③ Automotive and industrial, the automotive Ethernet business will be completed in the third quarter, and the overall business proportion will be smaller.

II. Core Data: Revenue & Gross Margin, In Line with Expectations

2.1 Revenue

Marvell Technology achieved revenue of $2.01 billion in the second quarter of fiscal year 2026, a quarter-on-quarter increase of 5.8%, in line with market expectations ($2.01 billion). Since the market mainly focuses on the growth prospects brought by AI business, the quarter-on-quarter perspective is more intuitive than the year-on-year. The growth in the company's revenue this quarter was mainly driven by consumer business and data center and AI business.

2.2 Gross Margin

Marvell Technology achieved a gross profit of $1.01 billion in the second quarter of fiscal year 2026, a year-on-year increase of 72%. The gross margin for Marvell this quarter was 50.4%.

Due to the impact of amortization of acquired assets on the company's gross margin, the gross margin in the financial report does not directly reflect the operating situation. After excluding this impact, Dolphin Research references the adjusted gross margin, showing the company's adjusted gross margin for this quarter at 58.7%. The actual gross margin performance of the company shows a downward trend, mainly because the gross margin of custom ASIC-related businesses is relatively low, and as the business proportion increases, it will structurally lower the company's overall gross margin.

2.3 Operating Expenses and Profit

Marvell Technology achieved a net profit of $190 million in the second quarter of fiscal year 2026. The company's adjusted gross margin is close to 60%, but the net profit in the financial report has been in a state of loss for a long time, mainly due to the impact of acquisition amortization, restructuring costs, and other factors.

After excluding these factors (restructuring costs and acquisition amortization, etc.), the company's adjusted net profit can reflect a more realistic operating situation. This quarter, the company's adjusted net profit was $424 million, a slight increase quarter-on-quarter.

The company's operating expense ratio for this quarter was 35.9%, remaining roughly flat quarter-on-quarter. The company's expenses are mainly invested in the technology research and development of custom ASIC and optical modules, with R&D expenses remaining stable.

III. Business Situation: New Product Gap Period, Custom ASIC Facing Decline

Since 2018, Marvell Technology has successively acquired companies such as Cavium and Innovium, thereby enhancing the company's ASIC and data center capabilities. With the growth in demand for custom ASIC and electro-optical interconnect products from companies like Amazon and Google, the company's data center business has grown to account for about 75% of the company's total revenue, making it the largest impact on the company's performance.

In addition, the revenue proportion of traditional businesses such as enterprise network, carrier infrastructure, consumer electronics, and automotive and industrial has all declined to 10% or less.

3.1 Data Center Business

Marvell Technology's data center business achieved revenue of $1.49 billion in the second quarter of fiscal year 2026, a quarter-on-quarter increase of 3.5%, below market expectations ($1.52 billion). The growth in the company's data center business this quarter was mainly driven by the growth of electro-optical interconnect products.

This quarter, the quarter-on-quarter increase in data center business continued to narrow to $50 million, mainly due to the significant slowdown in the growth of custom ASIC business. For the next quarter, the company has given a flat quarter-on-quarter expectation for the data center, which will directly affect the market's view of the company's growth prospects.

Currently, AI business has already occupied a large part of the data center business, Dolphin Research estimates the company's AI revenue for this quarter to be approximately $860 million, a quarter-on-quarter increase of $30 million; while non-AI business storage and other products are also expected to have a quarter-on-quarter recovery this quarter. The current AI business accounts for more than 40% of total revenue, and the company's management aims to increase the AI revenue proportion to over 50%.

Unlike Nvidia, which has narratives in sovereign AI, startups, robotics, etc., Marvell will rely more on the capital expenditure of CSP cloud service giants. The company's main logic is to provide custom ASIC products around the needs of cloud service giants and strive for a certain share in the AI chip market.

After the second-quarter financial report, many major manufacturers successively increased their capital expenditures for the second half of the year, and Dolphin Research expects the capital expenditures of the four core cloud manufacturers (Meta, Google, Microsoft, and Amazon) to increase to about $400 billion in 2025, a year-on-year increase of nearly 60%. During the period when each company increased capital expenditures, Marvell's stock price once rose to about $85. However, the company has given a quarter-on-quarter decline expectation for the next quarter, and this "rise and fall" comparison will make the market question the competitiveness of the company's custom ASIC products again.

Although the company provided a "raised growth expectation for 2028 data center TAM" and "added 2 new custom ASIC customers" at the June AI Day, it ultimately needs to be reflected in performance. Now the company is in a new product gap period and faces competition from Alchip. Even if a long-term vision is depicted, the current weak operating situation still makes it difficult to provide market confidence support.

3.2 Other Businesses

1) Marvell Technology's enterprise network business and carrier infrastructure business achieved revenues of $194 million and $130 million, respectively, in the second quarter of fiscal year 2026. Both businesses continued to grow quarter-on-quarter this quarter, reflecting the recovery in demand for the company's and campus network products, optical communication chips for carriers, and 5G base station chips as customer inventories normalize.

2) Marvell Technology's consumer electronics business achieved revenue of $116 million in the second quarter of fiscal year 2026, a year-on-year increase of 30%. The company's consumer electronics business mainly includes storage controllers, WiFi chips, and other products. This quarter, gaming demand and its seasonal characteristics were the main drivers of business growth, reflecting the recovery in demand in the gaming hardware market (such as game consoles and high-performance PC-related chips).

3) Marvell Technology's automotive/industrial business achieved revenue of $76 million in the second quarter of fiscal year 2026, flat year-on-year. The company's automotive/industrial business mainly covers areas such as autonomous driving, in-car entertainment systems, and industrial robots, with the company mainly providing automotive Ethernet and related products.

The company will divest its automotive Ethernet business in the third quarter, adopting an all-cash transaction model with a transaction amount of $2.5 billion, providing sufficient funds for subsequent capital allocation. After the divestiture, mainly industrial business will remain, and the overall business revenue is expected to drop to about $35 million next quarter.

The long-term annualized revenue expectation for the industrial business is about $100 million, accounting for a relatively small proportion, and is a non-core but stable contributing business for the company.