Custom chipmaker Marvell Technology (MRVL) has been chosen by Alphabet's (GOOG) (GOOGL) Google to develop custom chips along with it. Custom chips cost less than GPUs but lack the flexibility offered by the latter. Notwithstanding that, Matt Bryson of Wedbush Securities reckons that it is “advantageous” for players that have custom chip design capabilities.
In a note to clients, Bryson said, “Net, we don't see this outcome as necessarily unexpected. More importantly, we believe this spate of news and speculation reiterates that in the current environment, companies with custom silicon design capabilities as well as IP blocks are in an advantageous position and that given the spate of opportunities, it's not necessarily a zero-sum game (e.g., if Marvell owns, AVGO (Google's largest TPU partner) or AMD, or NVDA are necessarily losers).”
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Well, the last line deserves some more scrutiny, as Google last week partnered with AMD (AMD) for its new tensor processing unit, or TPU. Thus, it appears that Google is working to enhance its custom chip design capabilities by diversifying its partner base, which was led predominantly by Broadcom (AVGO).
On the other hand, while the details of the deal were not disclosed, Marvell had this to say about the deal: “The expanded partnership spans a comprehensive range of custom silicon programs that attach to the TPU ecosystem, including AI inference accelerators, storage controllers, network interface controllers, memory interface controllers, and near-memory compute.”
Also, as part of the deal, Marvell issued Google a warrant to purchase up to 58.97 million shares at an exercise price of $206.58 per share.
About Marvell
Founded in 1995, Marvell is an AI infrastructure company centered on data-center connectivity, custom silicon, optical interconnects, switching, storage, and AI infrastructure. Its custom silicon business in particular includes custom AI accelerators, XPUs, networking chips, storage and memory controllers, and data center interconnect products.
Valued at a market cap of $207.4 billion, MRVL stock has rallied by 183% so far this year. Notably, the stock also offers a dividend yield of 0.1%, and with a payout ratio of less than 10%, the headroom for growth remains.
So, coming back to the Google deal, is it just a diversification ploy from the tech major? Or does Marvell have something genuine to offer? Let's find out.
www.barchart.com Marveling at Marvell
The Google deal has been in the works for a while now. Back in May, rumors about the potential deal had surfaced, and in my analysis, I had pondered upon the reasons due to which Google may have been considering Marvell. Those reasons remain intact, with Marvell remaining a serious competitor to Broadcom in the application-specific integrated circuit (ASIC) space.
In fact, although the Marvell Technology agreement leaves the current supply arrangement between Broadcom and Alphabet unaffected, it demonstrates that Marvell has emerged as a direct competitor to Broadcom. This positions the company to supply leading hyperscale customers with its connectivity solutions and AI products.
Further, Nvidia (NVDA) CEO Jensen Huang's endorsement of Marvell being the “next trillion-dollar company” got a boost when it deepened its partnership with the company for NVLink.
During the most recent quarter, Marvell announced further expansion of its connectivity ecosystem by adding support for NVLink to its product lineup. In practical terms, this allows enterprise customers to deploy Marvell’s custom silicon while connecting seamlessly with Nvidia’s infrastructure. As a result, Marvell is establishing itself as a neutral networking platform capable of supporting the two leading AI interconnect standards, which creates additional growth avenues and access to customers operating Nvidia-based systems.
Solid Q1
The optimism around Marvell is reflected in its numbers, with its fiscal Q1 2027 witnessing a double beat on both revenue and earnings.
Net revenues grew by 28% from the previous year to $2.42 billion, with data center revenues making up 76% of the total net revenues of the company at $1.83 billion (+27% YoY). The communications segment also saw a growth of 29% in the same period to $585.1 million, forming the rest of the total revenues for the company. The company now expects net revenues of $2.7 billion in Q2, which would imply a growth of 34.6% in a year.
Notably, gross margins improved by about 200 basis points to 52.1% from 50.3% in the year-ago period.
Earnings rose by 29% on a YoY basis to $0.80 per share, outpacing the consensus estimate of $0.79 by a slight margin. For Q2, Marvell expects EPS to be in the range of $0.88 and $0.98 per share, the midpoint of which would denote a growth of 38.8% from the prior year.
Cash flows also remained robust. Net cash flow from operating activities increased to $638.8 million in Q1 2027 from $332.9 million in the year-ago period. Overall, Marvell ended Q1 2027 with a cash balance of $3.8 billion, with no short-term debt on its books.
However, as with its peers in the AI industry, MRVL stock trades at considerably overvalued levels when compared to the sector medians. Its forward P/E, P/S, and P/CF of 58.40, 17.99, and 61.62 are all much above the sector medians of 23.17, 3.47, and 20.21, respectively. Broadcom, the market leader, is not only trading at much cheaper levels, but also its forward revenue growth estimate of 49.81% is higher than Marvell's 42.90%.
Analyst Opinion on MRVL Stock
Thus, analysts have a consensus rating of “Strong Buy” for MRVL stock. The mean target price of $275.47 indicates an upside potential of about 14% from current levels. Out of 36 analysts covering the stock, 26 have a “Strong Buy” rating, three have a “Moderate Buy” rating, and seven have a “Hold” rating.
www.barchart.com On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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