Author: Rita
Marvell is evolving from an AI connectivity chip company into a custom computing platform company.
On August 28th, Citi issued a research report stating that Marvell raised its full-year revenue guidance for the second consecutive quarter. The FY2027 revenue expectation was raised from $11.5 billion to approximately $12.0 billion, and the FY2028 expectation was raised from $16.5 billion to approximately $18.0 billion. Management anticipates data center revenue to grow over 60% in both FY2027 and FY2028. Citi maintains a Buy rating with a price target of $275, based on 28 times the expected CY2028 P/E ratio.
Beyond the financials, three long-term narratives are taking shape: a newly signed custom chip agreement with Google covering the full XPU-attach portfolio; new design wins for CPO/NPO optical business; and a comprehensive long-term strategic update to be provided at the investor day on October 6th.
Revenue Guidance Revised Upwards Sequentially, Data Center Drives Majority of Increment
Marvell's second-quarter (July-Q) revenue was $2.74 billion, largely in line with expectations. Non-GAAP EPS was $0.94, slightly above the market consensus of $0.93 but below the company's prior guidance of $0.95 and Citi's estimate of $0.96.
The third-quarter (Oct-Q) guidance is more robust. The midpoint revenue guidance is $3.15 billion, up 15% sequentially and 52% year-over-year, surpassing the market consensus of $3.0 billion. The data center is the primary growth driver, with a sequential increase of approximately 18%. Gross margin guidance is 58.25%, down about 50 basis points sequentially, primarily due to a higher mix of custom ASICs and dilution from acquisitions, partially offset by strong optical sales. Non-GAAP EPS guidance is $1.10, above the market consensus of $1.07.
Citi estimates Marvell's AI data center interconnect DSP sales to reach approximately $5.3 billion and $7.7 billion in FY2027 and FY2028, respectively, with year-over-year growth rates of about 44% each. Core assumptions include: NVIDIA maintaining approximately an 85% share in the AI GPU market, with AI GPUs constituting about 52% of all AI accelerators; Marvell maintaining about a 70% share in the AI data center DSP market; strong ramp of 1.6T DSPs in the second half of 2026; and initial shipments of 3.2T DSPs beginning in 2027.
Google Agreement Covers Full XPU-attach Portfolio
In late July, Marvell signed an expanded commercial agreement with Google. Citi's report confirms key details of this agreement: the collaboration covers AI inference accelerators, storage controllers, NICs (Network Interface Controllers), memory interface controllers, and near-memory compute, among other categories. This encompasses the full scope of the XPU-attach portfolio Marvell defined years ago, rather than being a single project.
This distinction is crucial. Previously, the market had concerns that Marvell might encroach on Broadcom's share in the core compute die for Google's TPUs. Citi's interpretation aligns with Bank of America's: Marvell's role is concentrated in the XPU-attach peripheral chips, while the core compute chips remain with Broadcom. The XPU-attach market is characterized by fragmentation, a wide variety of categories, and lower value per individual project, but collectively represents a sizable opportunity.
Management reiterated the long-term target of $10.0 to $11.0 billion in revenue for the custom chip business by FY2029, noting that several larger projects associated with the new Google agreement will contribute more significantly in later periods. Marvell also clearly stated that "the custom business will significantly accelerate in the second half of FY2027," setting a specific internal timeline ahead of the October 6th investor day.
CPO/NPO Optics Becomes "The Most Exciting Area"
During the earnings call, management described scale-up optics as "one of Marvell's most exciting areas" and revealed that they have secured additional CPO and NPO design wins over the past few quarters.
Citi estimates the Celestial AI CPO/photonics fabric project at approximately $150 million, and the broader scale-up optics category (including NPO) at around $300 million. These figures were first disclosed in the previous quarter's call. Management characterized this opportunity as "massive" and promised a comprehensive update on the technology roadmap and revenue framework at the October 6th investor day.
Marvell's strategy involves making progress on multiple scale-up photonic architectures (CPO and NPO) simultaneously while continuing to grow the scale-up interconnect business.
Valuation and Risks
Citi's $275 price target is based on 28 times the expected CY2028 P/E ratio, consistent with the average P/E over the past three years. Citi extended the valuation base year from 2027 to 2028 to reflect the increased visibility of Marvell's two-year revenue guidance.
Citi expects total data center revenue in FY2027 and FY2028 to be $9.8 billion and $16.5 billion, respectively. Revenue related to XPU/XPU-attach is expected to constitute about 20% (~$2.0 billion) and ~28% (~$4.7 billion) of this total. Non-GAAP operating expense growth in FY2028 is projected to be about half the revenue growth rate, supporting further margin expansion. The non-GAAP operating margin is expected to reach the company's long-term target range of 38% to 40% in Q4 FY2027 and trend towards the higher end of that range in FY2028.
Downside risks include weakness in the storage business, slower-than-expected networking growth, and market share losses in storage and networking segments. Upside risks involve better-than-expected acquisition synergies and accelerated share gains in storage and networking.
Disclaimer
This article is a summary and interpretation by Chao Xiang Research of a third-party securities research report (Citi, August 28, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited in the article are the views of the respective securities analyst, representing only the position of their affiliated institution. They do not represent the views of Chao Xiang Research and do not constitute any investment advice.
The market involves risks, and investment decisions should be made independently. This article should not be used as a basis for buying or selling any securities.
