Marvell earns rating upgrade on expected data center business inflection

Investing.com -- Marvell stock earned an upgrade on Tuesday as brokerage Summit Insights said it sees a clear inflection ahead for the company’s data center business, with growth expected to accelerate sharply over the next two fiscal years.

The firm lifted its rating to Buy, arguing that the upcoming topline expansion should outweigh near-term softness and concerns around product-mix pressure.

Marvell expects its data center segment to expand about 25% year-over-year in fiscal year 2027 (FY27), followed by another 40% in FY28.

While Summit analyst Kinngai Chan said expects the chipmaker to benefit from rising port counts, bandwidth increases and a strengthening electro-optical business, he “continues to see risk of lumpy shipments for its AI ASIC programs.”

“Our industry checks, however, lead us to believe that AI capex will only accelerate in the next 2-years and both AI accelerators and interconnectivity will be the largest beneficiary of this capex spend,” he added.

Marvell’s October quarter revenue rose 3.4% sequentially to $2.07 billion, in line with expectations.

Data center sales grew 2% to $1.52 billion, supported by steady electro-optical demand, while Enterprise Networking and Carrier infrastructure rebounded sharply.

Automotive and industrial sales fell following the divestiture of the auto Ethernet unit. Non-GAAP gross margin improved to 59.7% on better mix.

For the January quarter, the company guides to 6% sequential revenue growth, reaching $2.20 billion.

Data center revenue is expected to rise about 9% as custom ASIC demand recovers, alongside continued growth in its electro-optical business.

Gross margin is projected to remain in the 58.5% to 59.5% range due to a less favorable product mix.

Marvell also expects its non-data center businesses to grow around 10% in FY27, contributing to an overall revenue outlook of $9.95 billion, ahead of consensus.

This week, Marvell Technology announced it will acquire semiconductor startup Celestial AI for $3.25 billion and issued an upbeat outlook for the coming fiscal year.

The surge in generative AI has intensified the race among chipmakers to deliver faster, more efficient hardware for large-scale data centers. Marvell and Broadcom have built sizable businesses designing custom chips for major cloud providers, tailoring components to high-performance AI workloads.

By buying Celestial, Marvell gains access to the startup’s photonics technology, which uses light instead of electrical signals to link AI processors with memory. The move strengthens Marvell’s position in a field where it competes with Broadcom and Nvidia.

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