Marvell Technology

Marvell Technology unveiled bullish long-term growth guidance at its 2026 investor day, implying 58% annualized revenue growth through calendar 2030. Management expects $80 billion in revenue and $30 in non-GAAP EPS at the midpoints, versus $8.2 billion and $2.84, respectively, in calendar 2025.

Why it matters: Marvell's base case comes in more than 50% higher on the top and bottom lines in 2030 than our bullish model coming in. It agrees with our view that artificial intelligence demand is accelerating through 2028 and durable through 2030. Still, the rate of growth blew our model out of the water. Marvell fully endorsed durable AI spending, calling for $3 trillion in AI capital spending in 2030 and supported by rising profitability and hyperscale cloud providers. We still see loss-making frontier labs OpenAI and Anthropic as material risks to this growth until they show they can turn a profit. We like Marvell's focus on connectivity, a wide product set, and a diverse customer base. To us, it owns both depth and breadth across AI silicon infrastructure, despite being a relatively small compute player. We see management's targets as highly credible.

The bottom line: We raise our fair value estimate for narrow-moat Marvell to $360 per share, from $300, on higher medium-term growth targets. Our fiscal 2031 (calendar 2030) revenue and EPS have risen about 40%. Shares still look undervalued to us, even after a 7% intraday pop. We model to the low end of management's target range ($70 billion in fiscal 2031 sales) and model revenue under the Google agreement falling far short of the $120 billion cumulative ceiling. In short, our valuation accounts for AI spending risk, and there's further upside on offer. Investors may still feel wary of a stock that's tripled in the last year and traded at 65 times consensus forward earnings before this event. The immense growth makes us more comfortable—-in our model, we imply Marvell being worth 23 times its fiscal 2029 earnings.

BLANK PAGEManagement focused on its comprehensive data center silicon portfolio, with a particular emphasis on connectivity. We agree the firm's strongest moat is in its connectivity, particularly in optics. We also like the whole suite of products, across optics, custom, switching, and storage. We view Marvell holding a terrific position no matter the exact technological paradigm changes over the next five years. Across architectures with more or less optics, or for higher or lower intensity of scale out versus scale across or scale up, we like Marvell's opportunity to gain share in artificial intelligence infrastructure with broad design prowess.

Specifically, Marvell raised short-term targets: fiscal 2028 revenue is now guided to $20 billion (from $18 billion) and fiscal 2029 custom revenue is now guided to more than $12 billion (from more than $10 billion). These both represent increasing broad-based momentum across the data center chip portfolio and simply wicked growth.

Long term, Marvell expects fiscal 2031 revenue between $70 billion and $90 billion. Management guided to non-GAAP gross margin between 56% and 59% (narrowed from 55% to 60%), non-GAAP operating margin between 44% and 46% (from 38% to 40%), and $30 in non-GAAP EPS at the midpoint in fiscal 2031. The fastest growing and largest buckets are interconnect ($37.5 billion midpoint in fiscal 2031, up from about $3.0 billion in fiscal 2026) and custom ($30 billion, up from $1.68 billion in fiscal 2026). Management emphasized these revenue targets are bottom-up forecasts, based on existing wins and not relying on greenfield design wins. We see optical connectivity and XPU attach sockets as the largest growth drivers in the medium term.

Our new valuation offers both upside and downside risk. The obvious downside is AI spending risk. If OpenAI and Anthropic fail to succeed at monetizing their business models, we'd expect a correction to overall AI spending, even if cloud companies succeed at earning a return on AI investments. If AI spending does indeed reach $3 trillion in 2030 as Marvell predicts, we think there's material upside to our forecast, and it would be likely that Marvell comes closer to the high ends of its target ranges. We model bull and bear scenarios here. In our bull case, we value Marvell stock at $520 and assume it nears the high ends of all its target ranges in fiscal 2031. In our bear case, we value Marvell stock at $180 (well below its current level near $290) and assume it misses the low ends of its targets significantly. Our bear case still assumes massive growth but a significant tapering after 2028 that implies a correction in AI spending broadly.

Our fair value estimate for Marvell Technology is $360 per share. Our valuation implies a fiscal 2027 price/adjusted earnings of 84 times and an enterprise value to sales of 24 times. Against our estimates for fiscal 2028 and 2029 adjusted earnings, our valuation implies multiples of 45 times and 23 times, respectively. The primary driver of our valuation is growth in data center revenue.

We expect 54% sales growth for Marvell over the next five years, primarily from organic share gains as it flexes its portfolio for growing applications in data centers and artificial intelligence. We expect it to take organic share across most of its end markets, but for its largest growth to come from custom compute chips and interconnect chips for optical connectivity.

Data center chips are the primary drivers of our forecast with a 62% compound annual growth rate through fiscal 2031. We estimate Marvell will gain significant wallet share at customers as cloud customers adopt higher levels of custom chip and optical content to advance to higher speeds and higher-performing AI models efficiently. We think Marvell will be a significant beneficiary of AI spending, given its leadership in optical chips and custom chip design. AI contributes meaningfully to our growth forecast, and we forecast it to be the majority of data center revenue going forward.

We see custom chips as one of the firm’s largest growth drivers, with revenue expected to grow at a 75% clip over the next five years. We see this growth as a function of rising custom chip volumes and increasing customer counts. We observe strong penetration in Amazon Web Services’ Trainium chips, along with significant future revenue from Microsoft’s Maia chips starting in fiscal 2028, as the main contributors to this growth. In the longer term, we expect Marvell’s penetration of Google’s TPU ecosystem to maintain high growth. We forecast optical connectivity chips to grow at a 60% annualized rate over our five-year forecast. In optical, we believe Marvell’s leadership position in scale-out connectivity will benefit from increasing investments in networking to enable AI model performance. We also expect a strong ramp for co-packaged optics revenue, supported by Marvell’s 2026 acquisition of Celestial AI, to pad growth over the next five years.

We estimate Marvell’s end markets to have gross margin profiles tightly grouped around the corporate average. The standout is the custom chip business, which we estimate to be closer to a 50% gross margin. We expect non-GAAP gross margins to remain in the high-50% range in the long run. A rising mix of custom silicon sales for AI will weigh on gross margins versus historical levels, but we note that these are actually operating margin-accretive via strong co-investment from customers that registers as contra-operating expenses.

We forecast strong reinvestment in research and development for Marvell, but see meaningful potential for operating leverage against significant revenue growth and a relatively concentrated customer base for custom chips. Marvell has guided to close to 40% non-GAAP operating margin in fiscal 2028, and we see non-GAAP operating margins expanding further, reaching the high-40% range in fiscal 2031, well above the 35% level from fiscal 2025.

Compared with Marvell’s 2026 investor day targets, we come in low on sales but higher on profit margin and earnings. Marvell is targeting $70 billion to $90 billion in revenue in fiscal 2031, along with gross margin between 56% and 59%, non-GAAP operating margin between 44% and 46%, and $30 in non-GAAP EPS at the midpoint. We model $70 billion in sales, 57% gross margin, 48% operating margin, and $34 in EPS in fiscal 2031. We note that a significant piece of our bullish EPS forecast is due to our share repurchase forecast, which isn’t baked into management’s targets. Our light conservatism on sales is primarily to account for AI spending risk over the next five years.

We assign Marvell Technology a narrow Morningstar Economic Moat Rating. In our view, Marvell holds intangible assets in networking chip design that enable it to compete at the cutting edge and defend its competitive position from well-capitalized competition, and also benefits from switching costs. We expect Marvell to earn excess returns on invested capital, more likely than not, over the next 10 years.

To us, intangible assets in networking chip design come in the form of engineering expertise, both in terms of silicon design and integration with complementary hardware and customer networking topologies, which results from decades of development, R&D expense, and engraved customer relationships. In our view, Marvell’s billions of dollars of cumulative R&D over the past decade have created a portfolio of differentiated intellectual property from which it can draw to build custom and semi-custom designs for myriad applications and customers.

We contend that Marvell commands pricing power for its differentiated technology and design. We believe that customers pay for performance and features in their networking chips, and Marvell’s pricing power shows in its healthy gross margins as it aggressively adds new sockets and expands within existing customers. Marvell’s customers have shown a commitment to build greater portions of their networks on its chips, reflected in strong cross-selling and upselling activity. Marvell’s $100-plus million customer count has risen quickly from 13 in 2020 to 19 today. These customers include the likes of Microsoft, which sole-sources Marvell’s optical chips for its North American regional data centers.

New chip generations with higher speeds allow networking equipment providers and end customers to improve network speed and performance, and transfer, store, and process more data. Beyond speed, performance as defined by a customer is affected by a wide variety of features like energy efficiency, memory, security, and specific network design characteristics. Marvell’s products are either tailored to a specific application within an end market, or semi-custom chips fine-tuned for an end customer’s networking architecture to allow easier software integration and desired feature sets. Marvell’s customers build networks according to its silicon feature sets, which creates an added level of stickiness, and design wins can last three to five years. As an incumbent, Marvell is in constant conversation with customers about roadmaps for their next technology generation and how to fine-tune a chip to future networking needs. Marvell’s most cutting-edge designs involve co-design from its large customers, which we see as a virtuous feedback loop of investment and IP that would be difficult for a new entrant to overcome.

Going forward, we believe networking technologies like switching, optical, and processing will become more intertwined. We see one example of this being switch chips that feature co-packaged optics technology and enable higher speeds. In our view, Marvell is one of a small handful of suppliers that has strong technology on each front and the breadth with which to serve several distinct end markets and applications—a position it has taken more than a decade and billions in R&D to develop. Though we see technological strength and differentiation in the firm’s switches, optical chips, and processors alone, we see even greater differentiation when combined into a tailored solution for an end market or specific customer. We believe higher levels of customization will elicit switching costs at customers, and believe Marvell may even generate R&D synergies in the future as technologies become intertwined. We expect Marvell’s organic investment to stay high over the long-term, keeping it at the forefront of design while pricing power maintains healthy profitability.

We see room for multiple moats in this market with established existing players, but we see significant barriers to entry for new entrants—in terms of investment, technological breadth, and customer relationships. We view moats in networking silicon as being carved by technological depth and breadth. Broadcom, Marvell, Intel, and Nvidia have all devoted years and billions of dollars toward organic development of technology and customer relationships, as well as consistent acquisition activity to build out broader portfolios. Broadcom dominates this market but has been outpaced in growth by the likes of Marvell, Intel, and Nvidia behind higher investment and penetration of processing and optical technologies. We surmise that Marvell’s optical, switching, and processing products are among the market leaders, and we also suspect that Marvell’s investments in networking chips even surpasses Intel and Nvidia today.

We believe new entrants would struggle to develop a sufficiently deep and wide portfolio to compete for high-value design wins, especially without existing customer relationships. Even a well-capitalized networking vendor in Cisco has struggled to make material market share gains with its Silicon One chips, with what share it does have coming primarily from integration into its walled garden ecosystem. Cisco showed that heavy dollar investment could lead to parity in terms of raw speed, but that wasn’t enough to generate meaningful share gains without broader features and complementary technologies with which to accompany it. A new entrant without Cisco’s budget and existing relationships within networking would have an even steeper hill to climb, in our view, with the years of expense and development required not threatening Marvell’s moat.

Marvell’s strong position in optical chips and its burgeoning custom chip business offer a strong foothold into generative AI infrastructure, which should fuel high growth.

Marvell’s strong non-GAAP profitability reflects moaty pricing power, in our view.

We believe Marvell’s wide portfolio of switches, processors, and optical chips gives it ample opportunity for cross-selling and share gains.

Marvell is significantly smaller than competitors like Broadcom and Nvidia, which risks the firm being unable to invest adequately to keep up with these massive peers.

Marvell is highly concentrated in data centers, which makes it highly sensitive to the rate of data center and AI spending. Deceleration or corrections in the rate of spending would mean downside to growth and valuation.

Marvell is a frequent acquirer, which risks the firm overextending itself or overpaying in the future and diluting shareholder value.