Marvell delivered a seemingly impressive report card with record revenue and a significant upward revision to its guidance. After the U.S. market closed on May 27, Marvell, a leader in AI custom chips, optical communications, and data center interconnect, released its Q1 FY2027 financial results and held an earnings conference call. With the data center business continuing to surge, the company again raised its full-year guidance substantially. CEO Matt Murphy stated directly on the call, "Our data center business is on fire," and that "order strength is exceptional." For Q1 of this fiscal year, Marvell reported revenue of $2.418 billion, a 28% increase year-over-year and a 9% increase sequentially, slightly exceeding analyst expectations of $2.41 billion. Non-GAAP earnings per share were $0.80, matching analyst estimates. However, GAAP net profit was $34.5 million, a significant decline from $177.9 million in the same period last year, primarily due to one-time expenses and non-cash amortization related to the acquisitions of Celestial AI and XConn. The data center business contributed $1.83 billion in revenue, accounting for 76% of total revenue, representing a 27% year-over-year and 11% sequential increase. Following the earnings report and conference call, the company's stock price fell by approximately 1%. Year-to-date, the stock had already more than doubled ahead of the earnings report. Under high expectations, merely "meeting expectations" might no longer be enough to impress the market.
"AI-related orders are exceptionally strong," Marvell Raises Guidance Again. This marks consecutive quarters of Marvell raising its guidance. For Q2 FY2027 guidance, the company expects revenue of approximately $2.7 billion (plus or minus 5%), representing year-over-year growth of about 35%, which is higher than the $2.6 billion analysts previously expected. The non-GAAP EPS guidance range is $0.88 to $0.98, with analysts previously expecting $0.90. Regarding full-year guidance, Marvell raised its revenue expectation for FY2027 to approximately $11.5 billion, representing year-over-year growth of about 40%. Three months ago, the company's guidance was "close to $11 billion." The outlook for FY2028 is even more notable. Marvell raised its revenue target for FY2028 to approximately $16.5 billion, about $1.5 billion higher than the guidance provided last quarter, corresponding to year-over-year growth of about 45%. CEO Matt Murphy stated in the earnings release: "We are seeing exceptional strength in AI-related orders, and as a result, we are significantly raising our revenue expectations for Marvell's FY2027 and FY2028, a substantial increase from the guidance provided last quarter."
Data Center: Accounts for 76% of Revenue, Growth is Accelerating Q1 data center revenue was $1.83 billion, up 27% year-over-year and 11% sequentially, accounting for 76% of total revenue. Marvell's growth forecast for this business is:
FY2026: +46% (already achieved) FY2027: Approximately +50% FY2028: Approximately +55%
Murphy stated:
The data center business is on fire. We expect revenue growth to accelerate this year and next, and that's from an already high base.
Interconnect Business: Growth Rate from 30%→50%→70%, CEO Says "Room for Upside" AI data center interconnect (Interconnect) is the largest segment within Marvell's data center business, covering product lines such as optical interconnect, DCI modules, and coherent optics. The expected annual growth rate for this business has been raised consecutively over the past few quarters: around 30% last September, then raised to 50%, and now further raised to over 70%. Murphy said directly when pressed by analysts:
I think there is a lot of room for upside here. Our legacy DSP business will see a significant step-up next year; the 1.6T product line is higher value content; DCI is accelerating; and there are new businesses like retimers, AEC, and scale-up optics... This is the beginning of a major growth cycle for us.
Why has the interconnect business suddenly become so important? Murphy provided clear reasoning: Early generative AI primarily addressed compute and memory bottlenecks, with network interconnect being a secondary issue. However, with the deployment of more complex architectures like inference models and Mixture-of-Experts (MoE) models, the volume of data transmission within AI clusters has increased dramatically, significantly elevating the importance of network interconnect. Key figures:
TIA and driver chips: Quarterly revenue expected to exceed an annualized run rate of $1 billion in the coming quarters. DCI module business: Already supplying all five major U.S. hyperscale cloud providers; expected annualized revenue to exceed $1 billion in FY2028, approximately double that of FY2026 (around $500 million). Scale-up optics (NPO/CPO optical interconnect): Previously expected around $150 million; now raised, expected to exceed $300 million in FY2028.
Custom Chips (XPU): Doubling Next Year, Target Over $10 Billion by FY2029 Marvell's custom chip (Custom/XPU) business is another key growth line and one of the market's most closely watched areas. Current progress:
FY2027 custom chip revenue: Year-over-year growth exceeding 20%. FY2028 custom chip revenue: Expected to double year-over-year, higher than last quarter's expectation. FY2029 target: Over $10 billion (previous target was approximately $8 billion).
Analyst Vivek Arya (BofA Securities) asked on the call: Does this mean FY2028 custom chip revenue is above $4 billion, then jumping to over $10 billion in FY2029, implying a single-year increase of $5 to $6 billion? Murphy's response was: Yes, you heard that right. Three key drivers for FY2028 custom chip growth:
Continued growth of existing flagship XPU projects. Over ten XPU attach projects (NIC, CXL, etc.) moving into higher-volume production stages, with demand continuing to exceed expectations. A new, top-tier XPU project entering production — Murphy stated, "The project is progressing well, and the full-year production plan is in place."
Murphy also revealed that while newly won design orders typically take about a two-year development cycle to contribute revenue, the significance of these projects lies in securing longer-term growth, which he referred to as "insurance policies."
Expanded Collaboration with NVIDIA, Three Key Areas Materialize This quarter, Marvell announced an expanded strategic collaboration with NVIDIA. Murphy detailed three core areas on the call: 1. Optical Interconnect Collaboration: Marvell has long provided DSP, TIA, and drivers to NVIDIA. The two companies are now further collaborating on silicon photonics technology, which is seen as a key enabling technology for scale-up networks. 2. NVLink Fusion Integration: Allows Marvell to build custom chips and network semiconductors that can seamlessly interface with NVIDIA infrastructure. Murphy stated this provides hyperscale cloud providers greater flexibility to freely mix and match between custom chips and NVIDIA chips, noting that "Marvell uniquely provides the bridge between these two architectures," which will create new market opportunities for both companies. 3. AI-RAN: Marvell will enhance its Octeon base station processors to enable direct collaboration with NVIDIA GPUs, running 5G/6G wireless workloads and AI applications simultaneously on the same hardware platform.
Supply Chain: Securing Capacity in Advance, Approximately $1 Billion in Prepayments This Year Facing continuously rising demand, supply chain management has become a critical variable. CFO Willem Meintjes revealed on the call that the company plans to make approximately $1 billion in supplier prepayments during FY2027, with the first payments starting in Q2. These prepayments will be credited against future material purchases. COO Chris Koopmans explained Marvell's supply chain strategy in response to an analyst question:
Everything AI-related has been supply-constrained from the start. Our approach is to build very tight relationships with a few key suppliers, providing them with five-year demand forecasts, delivering on our promises every time, and backing up our forecasts with actions and prepayments.
On the financial front, Q1 operating cash flow reached a record $639 million. The company repurchased $200 million worth of shares and paid $54 million in dividends during the quarter. As of the end of Q1, total debt stood at $4.96 billion, with a net debt/EBITDA ratio of 0.32x.
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