Marvell raises its medium-term growth targets, but elevated expectations, customer expansion visibility, and valuation constrain near-term share performance

Overview

The report assesses Marvell's latest quarterly results, its raised medium-term revenue targets, and its custom silicon partnership with Google. Goldman Sachs believes fundamental visibility has improved, particularly in the data center and custom compute businesses, but investor expectations are already elevated, and customer expansion and valuation concerns led it to maintain its Neutral rating.

Core views

Goldman Sachs expects Marvell's shares may remain range-bound following the earnings release. Management raised its 2026—2027 business guidance and provided additional details on the custom silicon opportunity associated with Google, representing an incremental fundamental positive. However, the market had already formed elevated expectations ahead of the quarter based on strong capital spending by key customers and the previously disclosed Google relationship, so these improvements may not be sufficient to drive a meaningful near-term rerating. Goldman Sachs believes the October Investor Day will be an important checkpoint for comparing Marvell's long-term market opportunity and revenue growth potential with peers. The core reasons for maintaining Neutral are that visibility into the expansion of Marvell's custom silicon customer base is lower than that of peers, while its relative valuation is significantly higher. Goldman Sachs may adopt a more constructive view only if confidence in the ramp of custom compute revenue in CY27 and beyond improves further. The latest quarterly results were broadly in line with market expectations. Revenue was US$2.74 billion, slightly above Goldman Sachs' forecast of US$2.70 billion and the market expectation of US$2.71 billion; gross margin was 58.9%, broadly in line with Goldman Sachs' 58.7% forecast and the market's 58.8% expectation. Operating margin was 36.6%, in line with Goldman Sachs' forecast and slightly below the market expectation of 36.8%; operating EPS was US$0.94, versus both Goldman Sachs and market expectations of US$0.93. By segment, data center revenue was US$2.17 billion, slightly above Goldman Sachs' US$2.14 billion forecast and the market's US$2.15 billion expectation; communications and other revenue was US$568 million, in line with Goldman Sachs and market expectations. This means the quarter did not deliver a major beat, although the core data center business performed slightly better than expected. The company raised its medium-term growth targets for the overall business. Driven by an improved data center outlook, management now expects FY27 revenue to grow 45% year over year to US$12 billion, including 60% growth in data center and 10% growth in communications and other. FY28 total revenue is expected to reach US$18 billion, up 50% year over year, driven by data center revenue growth of more than 60%, while communications and other is expected to achieve only low-single-digit growth. This indicates that the company's future growth will become increasingly concentrated in data center, with traditional businesses making a relatively limited contribution to overall growth. The raised data center outlook further strengthens medium-term visibility. The company expects CY26 data center revenue to grow 60% year over year, up from the previous forecast of 50%; within this, connectivity is expected to grow well above 70%, compared with the previous expectation of 70%. Management also noted strong progress in AEC DSPs, PCIe Gen 6 retimers, and Innovium switches. CY27 data center revenue is expected to grow by more than 60%, above the previous expectation of 55%; custom compute revenue is expected to grow by more than 100%, driven by ramps involving existing XPU customers, new XPU customers, and XPU companion-product opportunities. The company continues to see a potential custom silicon revenue opportunity of approximately US$10 billion in 2028, one of the report's most important sources of long-term growth support. The Google partnership expands the potential opportunity for the custom silicon business in CY28 and beyond. Marvell previously disclosed on August 19 that it had signed an agreement with Google to provide multiple categories of custom companion products for its TPU ecosystem, including storage controllers, network interface controllers, memory interface controllers, and near-memory computing products. In connection with the partnership, Marvell issued Google a warrant allowing it to purchase up to approximately 59 million shares of common stock at US$206.58 per share, representing approximately 7% of current shares outstanding; the arrangement is based on potential aggregate purchases by Google of up to US$120 billion through 2033. Management stated that the expected revenue from this program before CY27 had already been included in its original forecasts, but that the opportunity in CY28 and beyond is significantly larger. Therefore, the Google partnership has limited incremental impact on near-term forecasts; its greater significance lies in expanding the longer-term revenue opportunity for custom products. The company's third-quarter revenue guidance was above market expectations, but profitability metrics did not beat across the board. The midpoint of revenue guidance was US$3.15 billion, above Goldman Sachs' US$3.07 billion forecast and the market expectation of US$3.03 billion. Non-GAAP gross margin guidance was 58.0%, below both Goldman Sachs and market forecasts of 58.5%; operating expense guidance was US$655 million. The midpoint of non-GAAP EPS guidance excluding stock-based compensation was US$1.10, in line with Goldman Sachs' US$1.10 forecast and slightly above the market expectation of US$1.08. The strong revenue guidance was therefore partly offset by gross margin pressure and elevated expense levels. Based on higher revenue and company guidance, Goldman Sachs raised its 2026—2028 EPS forecasts by an average of 9%. The 12-month price target was increased from US$195 to US$220, continuing to apply an unchanged P/E multiple of 30x to normalized EPS, which was raised from US$6.50 to US$7.25. The price target increase is entirely attributable to improved earnings forecasts rather than multiple expansion. Despite stronger medium-term revenue and earnings visibility, Goldman Sachs continues to believe that uncertainty remains around custom compute customer expansion and that the elevated relative valuation limits the scope for a rating upgrade.

Analysis framework

Goldman Sachs first compares quarterly revenue, margins, EPS, and segment revenue item by item against its own forecasts and market consensus expectations, then analyzes management's latest guidance for overall FY27—FY28 revenue and the CY26—CY27 data center business. The report subsequently breaks down the sources of custom compute growth and the product scope and timing of the Google partnership, adjusts its 2026—2028 earnings forecasts accordingly, and finally derives the price target by applying an unchanged 30x P/E multiple to updated normalized EPS, while incorporating customer expansion visibility and relative valuation into its Neutral conclusion.

Methodology notes

• Event-Driven Trading and Behavioral FinanceExpectation Gap/Expectation Management

  Differences between results and guidance versus Goldman Sachs and market consensus expectations

  The report compares actual quarterly data and next-quarter guidance with Goldman Sachs forecasts and market expectations to determine whether the results had already been priced in by elevated investor expectations and whether the revenue beat would be offset by gross margin pressure.

• Valuation MethodologyPE/PEG valuation

  P/E-based price target using normalized EPS

  Goldman Sachs applies an unchanged P/E multiple of 30x to normalized EPS of US$7.25 to derive an updated 12-month price target of US$220; the price target increase reflects higher EPS forecasts rather than a higher valuation multiple.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Marvell Technology Inc. (MRVL)

  Data center, custom compute, and companion products for Google's TPU ecosystem are the primary drivers of medium-term revenue growth and higher earnings forecasts.

  Strengths

  The data center revenue outlook continues to improve, CY27 custom compute revenue is expected to grow more than 100%, and the company has an approximately US$10 billion custom silicon revenue opportunity in 2028.

  Weaknesses

  Visibility into the expansion of the custom silicon customer base is lower than that of peers, relative valuation is significantly higher, and third-quarter gross margin guidance was also below expectations.

  Comparison

  Goldman Sachs believes the October Investor Day will help investors compare Marvell's long-term market opportunity and revenue growth potential with peers.

  Risks

  Downside risks include a slowdown in overall AI spending and custom compute market share losses; upside could come from a stronger-than-expected custom compute ramp or recovery in traditional businesses.

Key data

• Quarterly RevenueUS$2.74 billionGoldman Sachs forecast US$2.70 billion, while the market expected US$2.71 billion.
• Quarterly Gross Margin58.9%Goldman Sachs forecast 58.7%, while the market expected 58.8%.
• Quarterly Operating Margin36.6%In line with Goldman Sachs' forecast and slightly below the market expectation of 36.8%.
• Quarterly Operating EPSUS$0.94Goldman Sachs and the market both expected US$0.93.
• Quarterly Data Center RevenueUS$2.17 billionGoldman Sachs forecast US$2.14 billion, while the market expected US$2.15 billion.
• Quarterly Communications and Other RevenueUS$568 millionIn line with Goldman Sachs and market expectations.
• FY27 Revenue GuidanceUS$12 billion, up 45% year over yearData center is expected to grow 60%, while communications and other is expected to grow 10%.
• FY28 Revenue GuidanceUS$18 billion, up 50% year over yearData center is expected to grow more than 60%, while communications and other is expected to grow in the low single digits.
• CY26 Data Center Revenue Growth60%The previous expectation was 50%; connectivity is expected to grow well above 70%.
• CY27 Data Center Revenue GrowthMore than 60%The previous expectation was 55%; custom compute revenue is expected to grow more than 100%.
• 2028 Custom Silicon Revenue OpportunityApproximately US$10 billionThe company stated that it continues to have visibility into this potential opportunity.
• Google WarrantUp to approximately 59 million shares at US$206.58 per shareApproximately 7% of shares outstanding; the arrangement is based on potential aggregate purchases of up to US$120 billion through 2033.
• Midpoint of Third-Quarter Revenue GuidanceUS$3.15 billionAbove Goldman Sachs' US$3.07 billion forecast and the market expectation of US$3.03 billion.
• Third-Quarter Non-GAAP Gross Margin Guidance58.0%Below both Goldman Sachs and market forecasts of 58.5%.
• Third-Quarter Operating Expense GuidanceUS$655 millionManagement guidance.
• Midpoint of Third-Quarter Non-GAAP EPS GuidanceUS$1.10Excluding stock-based compensation; in line with Goldman Sachs' forecast and slightly above the market expectation of US$1.08.
• 2026—2028 EPS Forecast RevisionRaised by an average of 9%Driven by higher revenue and the company's latest guidance.
• 12-Month Price TargetUS$220Previously US$195, using an unchanged P/E multiple of 30x.
• Normalized EPSUS$7.25Previously US$6.50.

Impact & implications

The report believes that raised data center guidance, accelerating custom compute revenue, and the Google partnership improve visibility into Marvell's medium-term fundamentals and support higher earnings forecasts and a higher price target. However, investor expectations were already elevated ahead of the quarter, third-quarter gross margin guidance was weak, and long-term customer expansion visibility and relative valuation remain constraints. Goldman Sachs therefore expects the shares to remain range-bound in the near term and maintains its Neutral rating.

Risks

• An upside risk is a faster-than-expected ramp in custom compute revenue.
• An upside risk is a stronger-than-expected recovery in traditional businesses.
• A downside risk is a slowdown in overall artificial intelligence spending.
• A downside risk is Marvell losing market share in custom compute.

What to watch

• Monitor the October Investor Day for further details on the long-term market opportunity, revenue growth potential, and peer comparisons.
• Monitor whether visibility into the custom compute revenue ramp in CY27 and beyond continues to improve.
• Monitor the actual ramp progress of existing and new XPU customers and XPU companion-product opportunities.
• Monitor whether the Google partnership can translate into a significantly larger revenue opportunity in CY28 and beyond.