Marvell Technology: At an inflection point in 2025 (High conviction)
2025 looks set to be a strong year for Marvell, with tailwinds coming from multiple businesses creating idiosyncratic opportunities
My investment thesis for Marvell Technology MRVL 0.00%↑ is finally starting to play out.
I started a position in Marvell because I was of the view that the market was sleeping on its custom silicon or custom ASIC opportunity that was ramping in the second half of FY2025.
In addition, I expected the non-data center markets to start to recover in the second half of FY2025 and through FY2026.
And finally, with the recovery in non-data center markets and strong growth in the data center market, I expected strong operating leverage to drive earnings growth that exceeds the revenue growth.
All 3 investment thesis starting playing out in this quarter.
In my opinion, Marvell is now entering a new era of growth that is supported by the very strong volume product ramp of its custom silicon programs and the continued strong growth that we see in its optics portfolio.
Today in this article, I will be going through:
Brief introduction to Marvell
Business review after FY3Q25
Outlook for Marvell for next year
Marvell’s competition and competitive advantages within custom silicon
Data center strength
AWS ramp and longevity of the AWS-Marvell partnership
Marvell’s AI upside for next year
Valuation of Marvell
Brief introduction
I wanted to provide a brief introduction to Marvell for those who are new to the company so that you have a basic understanding about the company before we go deeper into business review.
To start off, Marvell is a fabless semiconductor supplier of both standard and semi-custom products, and its core strengths include custom ASICs,
To understand Marvell's business, I share the revenue mix by end markets below.
The revenue mix has changed drastrically over the past year, due to a very strong secular growth in the data center end market, while the other markets have been in a cyclical downturn, but are emerging from it and showing signs of a recovery.
The data center end market makes up 70% of revenues, with enterprise networking and carrier infrastructure making up 10% and 5% of revenues respectively (Before the cyclical downturn, these two businesses formed a larger part of the business, as evident from just one year ago in 3Q24).
What are the semiconductor solutions Marvell offers?
These include custom ASICs, electro-optics and Ethernet solutions.
First, on custom ASICs.
Marvell's custom ASICs business is one that is growing rapidly, as I will mention below. Marvell develops custom System-on-a-Chip ("SoC") solutions that are tailored to the individual requirements and specifications of individual customers, allowing these customers to offer a differentiated and low cost offering within different end markets. Marvell has a ASIC platform due to its wide range of intellectual property in areas like ultra-high-speed SerDes, ARM compute, security, storage, and advanced packaging, including die to die interconnects and chiplets.
Marvell is an up-and-coming custom silicon company.
Its custom silicon business just started shipping this year and is expected to ramp to high volume production next year.
During its AI day in 2024, management also shared that three out of four of the hyperscalers are using Marvell for their custom silicon ambitions.
After doing some digging and talking, I found that Marvell the three hyperscalers are likely Amazon AMZN 0.00%↑ , Google GOOG 0.00%↑ and Microsoft MSFT 0.00%↑ .
Amazon and Google are likely to be customer A and B respectively, while Microsoft is likely to be the new customer, customer C.
Amazon being one of Marvell's custom silicon customers is public news given that Marvell is known to be a strategic supplier of cloud-optimized silicon for AWS, including not just networking, electro-optics, storage solutions, but also custom silicon business. In turn, Marvell uses AWS to scale its electronic design automation in the cloud to bring about its silicon solutions.
Marvell is also known to be involved in Microsoft next-generation ASIC, Maia, mentioned above, which will be ramped in 2026.
In turn, Marvell is involved in Google's Arm CPUs meant for its cloud service, which is meant to rival AWS Graviton chips.
Marvell's custom silicon solutions come from decades of compute and custom silicon experience, along with its acquisition of Cavium and Avera.
After successfully executing multiple 5 nanometer (“nm”) designs in the last few years, Marvell is now progressing through 3nm designs and investing in the advanced 2nm generation platform.
Second, electro-optics.
Another important solution that Marvell offers is electro-optics solutions, which is a key growth driver for Marvell. Marvell's electro-optical products include pulse amplitude modulation ("PAM") and coherent digital signal processors ("DSPs"), laser drivers, silicon photonics and data center interconnect DCI ("DCI") solutions. As a result, Marvell's electro-optics offerings provide data center customers with high-speed optical communication semiconductor solutions for inside cloud data centers, between cloud data centers and in carrier networks.
Third and lastly, Ethernet solutions.
Marvell's Ethernet solutions serve multiple end markets, including automotive, enterprise and data center end markets. These products include controllers, network adapters, physical transceivers and switches.
Marvell demonstrated strong revenue outperformance due to strong execution by the management team and an inflection in AI demand, alongside the start of the recovery in its non-datacenter markets. This resulted in earnings growth coming in more than double revenue growth due to the substantial operating leverage in its business model.
FY3Q25 business review
Revenues came in at $1.5 billion, growing 19% sequentially and 7% from the prior year, and beating consensus expectations by 3%.
Gross margin came in at 60.5%, down 140 basis points sequentially and down 10 basis points from the prior year, in-line with expectations.
EPS for FY3Q25 came in at $0.43, growing 43% sequentially and 5% from the prior year, and beating consensus expectations by 5%.
Due to the custom silicon business being stronger than expected, this will also help to accelerate its timeline to achieve its long-term target operating margin model.
Strong outlook
With the strong FY3Q25 results, management now has high optimism for the next quarter, with significant acceleration in its year-on-year revenue growth rate for next quarter.
In FY4Q25, the revenue is guided to be at $1.8 billion, accelerating to 26% growth on a year-on-year basis and once again growing 19% sequentially from the prior quarter. With the data center revenue almost doubling in FY3Q25, management expects the segment to continue to drive strong growth next quarter.
The revenue guidance was 13% ahead of consensus expectations, with an expectation that the data center segment grows low to mid 20s% next quarter while the enterprise networking, carrier infrastructure, automotive and industrial end markets continue to recover through FY4Q25.
While gross margin comes down 50 basis points to 60% due to unfavorable product mix as custom ASIC ramps, higher margin segments such as carrier infrastructure and enterprise networking are only just starting their recovery.
Marvell guided EPS for FY4Q25 to be $0.58, 12% ahead of consensus expectations.
Management highlights that they see a strong setup for the company going into FY2026.
Non-data center markets starting to recover better than expected
As I expected last quarter to be a bottom for Marvell’s non-datacenter markets, I think it is highly positive that in FY3Q25, Marvell is now starting to see a recovery across its non-datacenter markets.
Marvell’s non-datacenter end markets include enterprise networking, carrier infrastructure, consumer and automotive and industrial.
As can be seen below, there are no end markets with negative sequential growth, with carrier infrastructure seeing solid 12% sequential growth this quarter.
Collectively, the enterprise networking and carrier infrastructure businesses saw revenue increase 4% sequentially, as Marvell is starting to see a recovery in both of these end markets.
Management stated that for both these markets, they expect the pace of the recovery to accelerate in FY4Q25, with the collective revenue growth on a sequential basis to be in the mid-teens percentage range.
In addition, I would also note that this 4% collective sequential growth was ahead of management’s expectations, although Marvell is still shipping below end market consumption.
Marvell expects both businesses to get back to the $2 billion run rate, and it is a matter of when and not if.
The carrier infrastructure business is likely to have more positive idiosyncratic drivers in FY2026 as its own product cycle will drive the recovery here.
Marvell currently has a new socket in base stations that is ramping and in production.
As both the carrier infrastructure and enterprise networking businesses recover over time, we should continue to see a tailwind for Marvell’s operating income and profitability.
Next, we have the consumer end market. This market is also showing signs of recovery, given the revenues grew 9% sequentially in FY3Q25. However, due to seasonality in gaming demand, management expects this to decline by mid-teens percentage sequentially in the fourth quarter, which seasonally is the weakest quarter, with a rebound to come in the second quarter of next year.
Lastly, for the automotive and industrial end markets, the revenue in FY3Q25 was up 9% sequentially, highlighting the start of the recovery in this end market. Management expects that in FY4Q25, the automotive and industrial end markets should see revenue grow in the low-to-mid single digit percentage range sequentially.
Competition and competitive advantages within custom silicon
While there are several competitors in the custom silicon space, Marvell only regards itself and another “very large, highly scaled competitor” as two of the main players within the space that is capable of winning these large custom silicon deals with the hyperscalers.
The competitor mentioned above is of course, Broadcom AVGO 0.00%↑ .
In my opinion, the custom silicon business is one that has high barriers to entry, especially at the scale and level at which these hyperscaler customers are operating at.
Firstly, Marvell has differentiated itself from the smaller players in the form of a wide variety of intellectual property, with the intellectual property roadmap continuing to grow alongside the needs of customers.
As such, Marvell, and also Broadcom, are the two with the best capabilities to win these custom silicon deals.
Secondly, Marvell also has the manufacturing know-how, capacity and capability to generate high yields and quality to customers, along with the ability to service these customers when the products are actually launched.
Thirdly, Marvel has the team with the expertise and experience within custom silicon that not many other teams have given its head start in investing in this area many years ago.
Marvell’s team was able to execute the custom silicon win that is highly complex with 100 billion plus transistor chips with first-pass silicon. First-pass silicon refers to going from a concept to working silicon on the first try.
For reference, only about 30% of ASIC projects achieved first-pass silicon success in the past 20 years.
This demonstrates the strength of Marvel’s best-in-class engineering team and strong design methodology.
Lastly, to put all the three points above together, this competitor also needs to have the scale to cater to large hyperscaler customers.
At the end of the day, when you put all four barriers together, the barrier to entry within the custom silicon space is rather high.
Data center strength
The data center segment is finally getting the attention it deserves given that the other businesses now represent a much smaller piece of the overall business.
The data center revenues came in at $1.1 billion, growing 98% from last year and 25% from last quarter.
For the data center segment, Marvell is entering a new era of growth, with the continued strong growth in optics and substantial volume production ramp of its custom silicon programs supporting it.
Firstly, on the custom silicon ramp, in the FY3Q25 quarter, as expected, Marvell saw a significant step-up in its custom silicon ramp.
Encouragingly, management continued to see strong custom silicon demand going into the FY4Q25 quarter.
I was positively surprised by Marvell’s team ability to execute and scale up so quickly, which really demonstrated its strong relationship with its partners and solid operations and engineering team running the show.
Marvell has secured supply chain capacity to support these custom silicon customers growth forecasts and upside.
In my view, Marvell is executing beyond my expectations and this level of execution will affirm its custom silicon customer’s commitment to the company for future generations of products.
Secondly, on Marvell’s core electro-optics products, revenues grew double digits sequentially, more than management’s expectations due to strong demand for its leading products.
Marvell continues to see strong bookings for its market-leading 800-gig PAM products, and it also began shipments of the industry's first 1.6T PAM DSP and 5nm process technology, with strong design win momentum with leading customers for this product and expect the production ramp to accelerate in FY2026.
On top of that, Marvell also accelerated its cadence of new products, announcing the industry's first 3nm 1.6T DSP featuring 200-gig per lane electrical and optical interfaces, which reduces power consumption by at least 20% compared to its predecessor.
In my view, within its core electro-optics market, Marvell continues to be focused on delivering the best products and innovation to ensure it remains the leader in this fast-growing market.
AWS drives upside
Marvell announced expansion of its strategic collaboration with Amazon Web Services (“AWS”) for another 5 years through a comprehensive multi-generational five-year agreement.
The agreement covers various areas of Marvell’s portfolio, including custom AI products, optical DSPs, AEC DSPs, PCIe retimers, DCI optical modules, and Ethernet switching silicon solutions.
This is positive news for Marvell given that the agreement essentially helps assure investors about the longevity of the company’s partnership with its largest AI custom ASIC partner.
By extending the collaboration to 5 years, Marvell is aligning its AWS ASIC programs with Broadcom and Alphabet’s, which remains the gold standard in terms of volume deployments.
Additionally, in typical AWS fashion, the agreement includes the company and AWS entered into a warrant and related transaction agreement, up to 4.2 million shares of common stock.
This, similar to AWS warrant with Astera Labs ALAB 0.00%↑ , shows a clear belief in Marvell’s ASIC and networking know-how and ability to deploy at scale.
Secondly, Marvell will collaborate with AWS for EDA in the cloud, leveraging the advanced and scalable compute capabilities of AWS to accelerate silicon design.
The agreement between the two companies is a step-up in my view, especially in terms of volumes, and suggests that AWS is locking in on Marvell for future generations of custom ASIC products and solutions.
Lastly, AWS also commented at the re-Invent conference that it confirms a strong Trainium2 scale up based on 30% to 40% better price/performance. In addition, AWS and Anthropic will be building the largest machine learning training cluster, an EC2 UltraCluster of Trainium2 UltraServers called Project Rainier, that contains hundreds of thousands of Trainium2 chips and more than 5x the number of exaflops used to train their current generation of leading AI models. AWS also unveiled Trainium3, which will be rolled out in late 2025.
Optimistic outlook for the data center segment
In the FY4Q25 quarter, the data center business is expected to see between low-to-mid 20% sequential growth, with the strong growth to be contributed by yet another significant step-up in its custom AI revenue given their ramps, alongside continued growth in the optics portfolio.
As Marvell’s AI results have been exceeding expectations, it is very highly likely that they will significantly exceed the full year AI revenue target of $1.5 billion set in its AI event in April 2024.
Given the strong AI super cycle that it sees ahead, Marvell is fast becoming an AI data center company, with 73% of FY3Q25 quarter’s revenue coming from the segment.
As such, Marvell decided to reallocate resources and investments in the data center segment from other end markets, which resulted in a restructuring charge this quarter. This focus on the investment dollars on the data center segment will ensure that Marvell is able to be ahead of the competition in this segment and bring new innovative products in this fast-growing segment.
Valuation
Before going into the valuation of Marvell, I will be sharing more on my financial model for the company, with the summary of it shown below.
Do note that the forecasting is done based on calendar years.
First, on a broader level, I expect 2025 to be a strong year for Marvell for a few reasons. This is because of multiple tailwinds, including a recovery in the non-data center markets after being in a cyclical downturn for the past few quarters, strong growth in core electro-optics products within data centers and an even stronger ramp for custom silicon given the AWS ramp in 2025.
Secondly, I am raising estimates for my financial forecasts.
Given the strong beat and raise by the team in FY3Q25, I am raising my estimates marginally for this year and to a larger extent in calendar year 2025 and beyond.
My revenue forecast for 2024 was increased by 2% given there is only 1 quarter left in the year, while the outer years revenues are raised by 8%.
Similarly, my EPS forecast for 2024 was increased by 2% given there is only 1 quarter left in the year, while the outer years EPS forecasts are raised by 6% to 8%.
My intrinsic value for Marvell goes up to $113, which is based on the discounted cash flow model, where I discount all free cash flows to equity from 2025 to 2028 and the terminal value in 2028 to the present value as of Dec-24.
This assumes 35x terminal multiple and 12% cost of equity.
My entry price for Marvell is $90, which implies a 20% discount to its intrinsic value to ensure sufficient margin of safety.
My 1-year and 3-year price targets for Marvell goes to $119 and $151, implying 45x 2025 and 35x 2027 P/E respectively.
The P/E multiples are kept the same, while the upside in the price targets comes from the upside in the financial forecasts.
In my opinion, given that we are in an upcycle for Marvell today, there's room for both earnings beat and multiple expansion that can driver further upside to the price targets.
Conclusion
In my view, Marvell is currently at an inflection point and I would want to stay invested in the company for the next year.
We saw Marvell firing on all cylinders in FY3Q25, and this is leading to a very favorable setup for the next year in FY2026.
At the revenue level, the significant step-up and ramp in custom silicon and continued strong growth in its optics products will lead to outperformance on the data center front, while the recovery in its non-data center segments is also expected to contribute additional growth drivers.
Putting both these revenue drivers together, we will see significant operating leverage, with operating margin and EPS growing faster than revenues.
These tailwinds should bring about a strong year ahead in 2025.