Marvell Technology, Inc. (MRVL) just had the best quarter in its history, raised guidance for two years out, and still watched its stock get sold off. The company gave investors exactly what they wanted, but they sold anyway.
Here's the rundown: Marvell delivered record second-quarter revenue of $2.739 billion, up 37% year over year. It also raised fiscal 2027 revenue guidance to roughly $12 billion from $11.5 billion, and fiscal 2028 guidance jumped another $1.5 billion to approximately $18 billion. Yet shares fell more than 8% before Friday's open.
That contradiction reveals what's really going on. Marvell's AI opportunity is growing, but investors now want to know how quickly that growth turns into profitable growth.
Marvell's AI Business Is Booming
The underlying numbers are hard to dismiss. Data center revenue hit a record $2.17 billion, up 46% year over year. Marvell expects data center revenue to grow more than 20% sequentially and roughly 75% year over year in the third quarter. The company also raised its fiscal 2027 data center growth forecast from approximately 50% to 60%.
The longer-term picture is even more striking. Marvell now expects data center revenue to grow more than 60% in fiscal 2028. Its custom business is expected to more than double, while scale-up optics is accelerating faster than previously expected.
In other words, the AI story isn't weakening. It's getting bigger. So why is Marvell stock falling?
The Margin Pressure Is Real, But Temporary
The immediate problem is product mix. Marvell expects third-quarter revenue of $3.15 billion at the midpoint, implying 15% sequential growth and more than 50% year-over-year growth. But gross margin—the portion of every sales dollar left over after paying to manufacture the chip—is guided to 57.5% to 58.5%, down from 58.9% last quarter. That's roughly one cent less per dollar sold.
Marvell makes two kinds of chips: standard ones sold to many customers off the shelf, and custom ones designed to order for a single cloud company. Custom chips bring in enormous revenue, but they earn less profit per sale. And custom is the part growing fastest—Marvell expects it to more than double next fiscal year. The faster it grows, the more it pulls the company average down.
"Mix is the primary driver. We've got a strong ramp in custom," CFO Daniel Durn said. Custom silicon is growing rapidly, but that growth creates a temporary margin headwind.
There's an important offset, though. Marvell's second-quarter non-GAAP operating margin reached 36.6%, up 180 basis points year over year. Management expects to enter its 38%–40% long-term operating-margin range in the fourth quarter. So the market isn't facing a collapsing margin story—it's facing a timing problem.
The Google Deal Is Mostly A Longer-Term Story
Marvell's expanded Google relationship could generate $120 billion in cumulative revenue over roughly six years. But investors shouldn't treat that figure as near-term revenue. Management said revenue covered by the agreement through fiscal 2028 is already reflected in its existing custom forecast. The bigger impact is expected from fiscal 2029 onward. That also helps explain the stock reaction.
The Bar Was Already Sky High
There's a third reason for the selling: Marvell shares have returned 222.84% over the past twelve months. After a run like that, hitting your own targets is no longer enough.
Analysts stayed positive regardless. Eight firms raised their price targets Friday morning. According to analyst ratings, Marvell stock carries an average consensus price target of $257, implying a 12.8% potential upside from Thursday's close.
| Firm | New Target | Old Target | Rating |
|---|
| Craig Hallum | $300 | $217 | Buy |
| Needham | $300 | $270 | Buy |
| Cantor Fitzgerald | $300 | $220 | Neutral |
| Raymond James | $295 | $235 | Strong Buy |
| Evercore ISI | $275 | $251 | Outperform |
| Morgan Stanley | $246 | $224 | Equal Weight |
| TD Cowen | $245 | $225 | Hold |
| Goldman Sachs | $220 | $195 | Neutral |
What The Sell-Off Missed
The longer-term picture arguably got better, not worse. Management said the biggest single driver of the $1.5 billion increase wasn't custom chips at all. It was scale-up optics—using light instead of copper wire to move data between AI chips inside a data center. Chief Executive Matt Murphy said demand is accelerating faster than the company expected a quarter ago.
Marvell is increasingly selling the plumbing around AI. So, Marvell's AI story is intact. But after a 220%-plus trailing-year rally, investors are demanding more than growth. They want growth, margins, and cash flow to arrive together.
For now, Marvell stock is falling not because the AI opportunity has disappeared, but because the market is asking how much of tomorrow's opportunity is already priced into today's stock.
