Written by: Rita

Marvell is evolving from an AI connectivity chip company into a custom computing platform company.

On August 28, Citi released a research report indicating that Marvell has raised its full-year revenue guidance for the second consecutive quarter, with FY2027 revenue expectations increasing from $11.5 billion to approximately $12 billion, and FY2028 from $16.5 billion to approximately $18 billion. Management expects data center revenue to grow by over 60% in both FY2027 and FY2028. Citi maintains a buy rating with a target price of $275, based on a 28x expected CY2028 price-to-earnings ratio.

Apart from the performance, three long-term narratives are taking shape: a new custom chip agreement signed by Google covering the full range of XPU-attach categories, CPO/NPO optical business wins new design orders, and the investor day on October 6 will provide a complete long-term strategic update.

Revenue guidance continuously revised upward, data center contributes major increments

Marvell's second-quarter (July-Q) revenue was $2.74 billion, roughly in line with expectations. Non-GAAP earnings per share were $0.94, slightly exceeding the market consensus of $0.93, but lower than the company's previous guidance of $0.95 and Citi's expectation of $0.96.

The guidance for the third quarter (Oct-Q) is even stronger. The midpoint revenue guidance is $3.15 billion, representing a 15% quarter-over-quarter increase and a 52% year-over-year increase, exceeding the market consensus of $3 billion. The data center is the main source of growth, with about an 18% sequential increase. The gross margin guidance is 58.25%, a sequential decline of about 50 basis points, mainly affected by the increased proportion of custom ASICs and M&A dilution, though robust optical sales offset the pressure. Non-GAAP earnings per share guidance is $1.10, higher than the market consensus of $1.07.

Citi estimates that Marvell's AI data center interconnect DSP sales are expected to reach $5.3 billion and $7.7 billion in FY2027 and FY2028, respectively, both with an approximately 44% year-over-year growth rate. Core assumptions include: NVIDIA maintains about 85% market share in the AI GPU market, AI GPUs account for about 52% of all AI accelerators; Marvell holds about 70% market share in the AI data center DSP market; and 1.6T DSPs will ramp up significantly in the second half of 2026, while 3.2T DSPs will start shipping in 2027.

Google agreement covers all XPU-attach categories

In late July, Marvell signed an expanded commercial agreement with Google. Citi confirmed the core details of this agreement in its research report: the collaboration covers multiple categories including AI inference accelerators, storage controllers, NICs (network interface controllers), memory interface controllers, and near-memory computing, which fits the XPU-attach category defined by Marvell several years ago, rather than being a single project.

This distinction is crucial. Previously, the market was concerned that Marvell might encroach on Broadcom's share in Google's TPU core compute die; Citi's interpretation aligns with Bank of America's: Marvell's role is focused on chips around XPU-attach, while core compute chips remain under Broadcom's control. The XPU-attach market is characterized by fragmentation, diversity, and lower individual project value, but cumulatively represents a significant scale.

Management reiterated its long-term target of $10 to $11 billion in custom chip revenue for FY2029, while noting that several larger projects related to the new agreement with Google will gain momentum later. Marvell also clearly stated that "custom business will significantly accelerate in the second half of FY2027," setting a specific internal timeline before the October 6 investor day.

CPO/NPO optics become "the most exciting area"

Management referred to scaling-up optics as "one of the most exciting areas for Marvell" during the earnings call, revealing that additional CPO and NPO design orders have been secured over the past few quarters.

Citi estimates that the CPO/photonic fabric project from Celestial AI is about $150 million, while the broader scaling-up optical category (including NPO) is approximately $300 million, with these figures first disclosed during the previous quarter's earnings call. Management described this opportunity as "huge" and promised a comprehensive update on the technology roadmap and revenue framework on the October 6 investor day.

Marvell's strategy is to layout across multiple scaling-up photonic architectures (CPO and NPO) while continuing the growth of scaling-up interconnect business.

Valuation and risks

Citi's target price of $275 is based on a 28x expected CY2028 price-to-earnings ratio, consistent with the average price-to-earnings ratio over the past three years. Citi has postponed the valuation benchmark year from 2027 to 2028, reflecting the improved visibility of Marvell's two-year revenue guidance.

Citi expects total data center revenue for FY2027 and FY2028 to be $9.8 billion and $16.5 billion, respectively, with XPU/XPU-attach related revenue accounting for about 20% (approximately $2 billion) and 28% (approximately $4.7 billion). FY2028 non-GAAP operating expense growth is expected to be about half of the revenue growth rate, supporting further margin expansion. Non-GAAP operating margin is expected to reach the company's long-term target range of 38% to 40% in the fourth quarter of FY2027 and approach the upper end of this range in FY2028.

Downside risks include weakness in the storage business, slower-than-expected network growth, and share loss in storage and networking. Upside risks involve exceeding expected synergies from M&A and faster growth in share in storage and networking.

Disclaimer

This article is a compilation and interpretation of third-party brokerage research reports (Citi, August 28, 2026) by Chaoxiang Research, along with the collection of publicly available market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the text reflect the views of analysts from that brokerage firm and only represent the positions of their respective institutions, not those of Chaoxiang Research, nor does it constitute any investment advice.

The market carries risks, and decisions should be made independently. This article should not be used as the basis for buying or selling any securities.