Optics Continue to Drive Marvell’s AI Business More Than Custom Chips

Marvell’s datacenter business has become the company’s primary growth driver, with nearly all of that expansion coming from components used in AI clusters. Although Marvell has significant custom-chip agreements with Amazon Web Services, Google, and other customers, custom silicon remains a relatively small part of the business. Optical networking components and switching products continue to account for most of the company’s sales.

Marvell’s legacy products for telecommunications carriers, enterprise networking, and consumer and industrial devices continue to generate revenue, although their performance varies. These businesses were once a larger part of a much smaller Marvell, but the company now reports them together rather than discussing each division separately.

Nvidia has taken a similar approach by grouping businesses outside its datacenter segment into Edge Computing. Marvell’s financial profile resembles Nvidia’s earlier divisional structure, although Marvell’s figures are considerably smaller and its growth curve has been less steep so far. AI networking, custom XPUs, and custom CPUs are expected to expand as hyperscalers, cloud builders, and AI model developers increase their deployments. In this market, Marvell is becoming a significant counterweight to Nvidia, alongside Broadcom.

Datacenter growth dominates Marvell’s results

In the second quarter of fiscal 2027, which ended on August 1, Marvell reported $2.17 billion in datacenter product sales. That represented a 45.7 percent increase from the same quarter a year earlier and an 18.5 percent sequential increase.

An estimate for legacy enterprise networking, which could reasonably be included with the datacenter business, adds another $266 million for the quarter. That would represent an estimated 37.4 percent year-over-year increase. Because Marvell has not explicitly reported revenue for its former legacy divisions since Q3 F2026, the individual figures remain estimates.

Combined, the legacy businesses generated an estimated $567.8 million, an increase of 10.1 percent for the quarter. Datacenter products accounted for 79.3 percent of Marvell’s total sales. Including enterprise networking raises the datacenter-related share to approximately 89 percent of revenue.

The uncertainty around the estimated division figures continues to increase unless Marvell provides more detail at its upcoming financial analyst day. The company’s current structure also recalls Nvidia’s division mix before and after the generative AI boom.

Since Q2 F2021, Marvell’s datacenter business has grown by a factor of 8.1. Over the same period, its legacy chip businesses have grown by a factor of 1.3. Marvell’s acquisitions of IBM’s custom-chip business from GlobalFoundries, Inphi, and Celestica AI helped position the company for the current market. The sale of its automotive chip business to Infineon also reduced the company’s exposure outside its main growth areas. Marvell could sell additional divisions to raise capital, create more flexibility, and sharpen its focus on AI and datacenter products.

Estimating Marvell’s AI-related businesses

A more detailed breakdown of Marvell’s datacenter business would clarify the contribution of its different product groups. Public comments and scattered data points from Marvell executives make it possible to construct an estimate that separates AI electro-optics, AI custom chips, and other datacenter products. Enterprise networking is excluded from this breakdown.

When the generative AI boom was beginning in early 2023, approximately Marvell’s Q1 F2024, the company’s AI business generated about $77 million. That total included roughly $12 million from early custom ASIC activity connected with Amazon Web Services’ Graviton chips and approximately $66 million from electro-optical component sales.

By Q2 F2027, a little more than three years later, estimated AI revenue had reached $1.82 billion. That was a 90.9 percent year-over-year increase and 23.6 times the level from three years earlier.

AI XPU revenue declined slightly sequentially in the current quarter to approximately $425 million. Even so, it was up 43.1 percent year over year, exceeding the roughly 20 percent growth rate Marvell had indicated to Wall Street several quarters earlier.

Electro-optical components remain the largest part of Marvell’s AI business. Estimated revenue from that category reached approximately $1.4 billion, an increase of 97.2 percent. Other datacenter products sold outside the AI customer group contributed about $347 million, down 28.4 percent.

Revenue outlook

Marvell reported total revenue of $2.74 billion for the quarter, up 36.5 percent. Operating income increased 58.5 percent to $460 million, while net income rose 58.1 percent to $308 million. The company held $3.93 billion in cash, which it will need to meet its obligations to customers for whom it manages chip-development programs.

Marvell raised its guidance again and now expects approximately $3.15 billion in Q3 F2027 sales. That would represent a 51.8 percent year-over-year increase and a 15 percent sequential increase. Matt Murphy, Marvell’s chairman and chief executive officer, said growth would accelerate in Q4 2027. Revenue from Google’s expanded partnership with Marvell is expected to begin in Q3 F2027. Marvell expects its datacenter business to grow by approximately 20 percent sequentially and 75 percent year over year in the third fiscal quarter.

Murphy raised fiscal 2027 revenue guidance to $12 billion, up from the previous estimate of $11.5 billion. That implies approximately $3.7 billion in Q4 F2027 revenue, an increase of 66.4 percent from the same quarter a year earlier.

Datacenter and AI products are expected to account for most of this growth. Based on the guidance, custom CPUs and XPUs could generate approximately $2 billion in fiscal 2027 revenue, growing by about 33 percent. That would exceed the roughly 20 percent growth rate Marvell had discussed several quarters earlier. The company’s legacy communications and other chip businesses are expected to grow by approximately 10 percent in fiscal 2027.

For fiscal 2028, Marvell increased its revenue guidance by $1.5 billion from the previous quarter’s estimate, raising it to $18 billion. That represents a 50 percent growth rate. Murphy also said the datacenter business would grow by more than 60 percent in fiscal 2028.

Network components for UALink, ESUN, and NVSwitch networks, along with the Celestial AI optical interposer, are expected to contribute approximately $300 million. Celestial AI hardware is expected to account for about $150 million of that total.

Marvell expects its custom CPU and XPU accelerator business to more than double in fiscal 2028 and grow even faster in 2029. The Google agreement will contribute to that expansion, along with custom-chip projects that Marvell is managing for Amazon Web Services and other customers.