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Marvell (MRVL -8%) is trading lower following its Q2 (Jul) results, as investors appeared to want more upside after the stock's 40%+ rally since late July. While Q2 revenue grew 36.5% yr/yr to a record $2.74 bln and Q3 guidance was above consensus at the mid-point, EPS upside was modest and gross margin is expected to contract slightly in Q3. Importantly, however, Marvell raised its FY27 revenue outlook to $12 bln (+45%) from $11.5 bln and FY28 revenue guidance to $18 bln (+50%) from $16.5 bln (+45%), reinforcing the increasingly bullish long-term AI infrastructure story.

• Data center mix: Data Center revenue grew 46% yr/yr and 18% sequentially to $2.17 bln, in line with prior guidance, while Q3 guidance calls for revenue growth of 75% yr/yr and more than 20% sequentially. Growth remains broad-based across interconnect, switching, and custom products, with AI demand continuing to drive strong adoption of Marvell's connectivity solutions.
• AI infrastructure: Interconnect remains the leading growth driver, particularly optical DSPs, switching, and broadband analog components supporting scale-out AI applications. Marvell continues to see strong demand across its Data Center portfolio, while its Custom business is expected to ramp significantly in the second half, providing another important leg of growth.
• Communications: Communications and other revenue increased 10% yr/yr but declined 3% sequentially to $567.8 mln. Management expects this business to remain somewhat lumpy, with Q3 revenue projected to decline in the low-to-mid teens both yr/yr and sequentially before a solid sequential recovery in Q4.
• Margins: Non-GAAP gross margin was 58.9% in Q2, slightly above the midpoint of prior guidance, but Q3 gross margin is expected to decline a bit sequentially to 57.5-58.5%. The anticipated acceleration in Custom is creating some near-term mix pressure, with management expecting gross margin to remain in that range in Q4.

Briefing.com Analyst Insight

Marvell's results reinforce the strength of its AI infrastructure opportunity, but the near-term reaction reflects elevated expectations rather than a fundamental deterioration in the story. After the stock rallied more than 40% since late July and following NVIDIA's (NVDA) strong quarter this week, investors were likely looking for more upside in Q2 and a clearly above-consensus Q3 outlook. That said, the more important takeaway is the significant improvement in Marvell's longer-term outlook, with FY27 and FY28 revenue targets both raised materially. The acceleration is also broad-based across interconnect, switching, and Custom, reducing reliance on any single AI product category. We view the pullback as more reflective of elevated expectations and profit-taking than a change in the underlying AI demand trajectory, although the stock likely needs to see continued upside to estimates and improving margins to regain momentum.