Marvell Stock: Can Its Custom ASIC Pipeline Drive MRVL Above $230?

TradingKey - As of June 1, Marvell Technology (NASDAQ: MRVL) is sitting at $204.76 within the upward-sloping blue channel, hovering just over the MA50 line, which is located at $199.86. The MA100 line can be found lower, at $188.31. The current Relative Strength Index (RSI) stands at 57.38 in neutral-bullish territory with no divergence in sight and momentum appearing steady. Since the May 25 piece discussed the beat for Q1 FY2027 ($1.41 billion in revenue, Data Centre +42% y/y to $678 million) and Marvell’s placement across the three-layered AI stack, this article looks at the underlying material understate of the current $678 million Data Centre quarterly run rate: the recent custom ASIC design wins that Marvell signed this and last quarter that have not yet translated into revenue.

The 12 to 24 month cycle that passes between a design win and when revenue starts to kick into production is the main reason the Data Centre segment will look dramatically different in Q4 FY2027 than it was in Q1.

Why the Custom ASIC Revenue Lag Means $678M Is a Floor, Not a Ceiling

Marvell’s custom ASICs run off an entirely different revenue timeline compared to its merchant silicon and standard networking products. For a merchant silicon product like an Ethernet switch or a PAM4 DSP, the chip turns to revenue as soon as the sale is made (sometimes within a few weeks). With a custom ASIC design win, a purpose-built chip for a specific hyperscaler use case (inference accelerator, custom networking chip, storage controller, etc.), Marvell signs a multi-year supply agreement, and then the chip goes into a 12 to 24-month window of design, chip tape-out, product validation, and qualification before the hyperscaler deploys the chip into production and revenue starts rolling in. The design wins announced during Q1 FY2027 won’t likely see the first round of their production revenue until Q1 to Q3 FY2028, at the earliest.

That revenue lag translates into a structural understate in today’s reported numbers. When Marvell CEO Matt Murphy brings up new custom ASIC design wins during an earnings call, he is essentially pre-announcing revenue a year or two out from the current quarter that is not currently being factored into Marvell’s stock price because the revenue won’t appear for a long time. The $678 million Data Centre revenue that Marvell booked in Q1 FY2027 is from design wins that were signed approximately Q1 FY2025 to Q1 FY2026; the revenue for design wins signed in this quarter won’t show up until fiscal 2028. That visibility of future design wins into revenue is the structural argument for Marvell Data Centre having not peaked, but rather being just starting a multi-year ramp.

Optical DSPs Optical DSPs and High-Speed Ethernet — The Near-Term Revenue Drivers Running in Parallel

Custom ASICs are a high-duration revenue cycle, but optical DSPs and high-speed Ethernet switches are the near-term drivers of revenue. Optical DSPs (chips that convert electrical signals to optical signals inside data centre transceivers) are a necessary commodity inside every single rack of an AI data centre and between data centre buildings. As AI clusters scale into gigawatt scale facilities, the transceiver count grows much faster than the GPU count, as distributed AI training requires dense optical connections between all nodes in the cluster. Marvell’s PAM4 DSPs are the best in the class to power optical connections in this market, and they are the first type of chip in this story that turns to revenue on standard product order cycles rather than the 12 to 24 month time frame of custom ASICs.

Marvell’s high-speed Ethernet switches are also a near-term revenue driver. The industry is still locked in a fight over whether InfiniBand (Nvidia’s Quantum) or high-speed Ethernet should be the interconnect protocol of choice for the AI cluster. Ethernet has an advantage due to being open-standard, being more accessible to enterprise networking teams, and the fact that there are other vendors in the space (including Marvell, Broadcom, and Cisco). If the market moves further toward Ethernet as the network of choice for the AI cluster (which a few hyperscalers are pushing for), then Marvell has a lot of room to grow its market share. Both AWS and Meta are vocal about their support for Ethernet as the AI cluster interconnect protocol, which is an obvious tailwind for Marvell.

MRVL Technical Setup — Ascending Channel at $204, Targets $222 and $234

On the 4H, MRVL is at $204.76 in the ascending blue channel from the $154.42 base. The price is riding the top side of the MA50 at $199.86 and MA100 at $188.31 as dynamic supports. The RSI is reading at 57.38 in neutral-bullish conditions with no divergence visible. Volume is expanding on green price legs.

The latest candles are testing the horizontal cluster resistance area around $203.86 to $208.69 after clearing the resistance from previous days. A break above the channel extension towards $222.62 and $234.30 would take place if price decisively clears resistance around $208.69.

The stop placed under the MA50 (at $199.86) protects against a breakdown that invalidates the dynamic support of the current price action and rising channel.

TRADE SET UP

• Entry: Long above $208.69, horizontal resistance cleared
• Target 1: $222.62, channel extension
• Target 2: $234.30, upper channel extension
• Stop Loss: Close below $199.86, MA50 and channel extension floor break down

So, why does it take Marvell’s custom ASICs 12 to 24 months to contribute to the top line?

A custom ASIC is an application-specific integrated circuit that has been customized to meet the exact needs of a specific workload for a given hyperscaler. The design win gets awarded, and the chip goes through a 12 to 24 month process of design, tape-out, validation, and qualification before the hyperscaler deploys the chip for production. Custom ASICs cannot be shipped on a buy-to-order basis in the same way that merchant silicon chips can. Because a custom ASIC is a long-term supply contract (usually multiple years), the only time Marvell would see revenue from a design win is once the ASIC is deployed by the hyperscaler in their specific production environment. This is why Marvell’s Q1 FY2027 Data Centre revenue ($678 million) is not reflective of the design wins being announced this quarter, it is reflective of design wins that were awarded two years ago.

Why are AWS and Meta talking up the Ethernet versus InfiniBand debate?

AI GPU cluster designs can be constructed utilizing either InfiniBand (Nvidia Quantum is the primary supplier of these interconnects) or high-speed Ethernet as the connectivity between servers in the networking fabric of the AI cluster. InfiniBand is typically preferred in applications that require tightly-coupled distributed model training (due to its low latency), whereas Ethernet is a standard, is more familiar to enterprise networking engineers, and has a large vendor ecosystem. However, AWS and Meta have both publicly announced an Ethernet-based AI cluster networking strategy. The more data center hyperscalers migrate to Ethernet for their AI clusters the greater Marvell's high-speed Ethernet switch portfolio can capture (in competition with Broadcom and Cisco).

Can we expect MRVL to break higher after breaking above the May resistance level?

MRVL Technical Setup: Bullish. The stock is trading inside an ascending channel above the MA50 ($199.86) with the RSI at 57.38 with no evidence of bearish divergence. A confirmed breakout from above $208.69 will see further upside toward $222.62 and $234.30. The long-term technical support is at $199.86 (the MA50 and bottom of the ascending channel) which could serve as the entry zone for a new long position.

MRVL Bull Case: Data Centre revenue growth (+42% in Q1 FY2027 YoY), potential new custom ASIC design wins that will ramp into revenue throughout the upcoming FY2028, and potential growth of optical DSP and high-speed Ethernet switch business in the near-term. The stock’s technical setup is solid, but more importantly, the business is positioned to see accelerated growth throughout the next two years as a result of its custom ASIC design win backlog. The key fundamental monitors over the next few months will be the Q2 FY2027 report (to be released in late August 2024) and any hyperscaler AI CapEx guidance that may come out over the coming weeks.

The Bottom Line

Marvell’s Q1 FY2027 data center revenue ($678 million) is the direct result of design wins that it won two years ago. Today, we are announcing new design wins that will start ramping into the top line later in FY2028. The 12-24 month lag time is important for the following reason: current top line growth in the data center business segment represents a floor for its growth rate in the future, not a ceiling.

Another near-term catalyst will be the growth of the company’s optical DSP business (a component in the AI GPU clusters), and the longer-term catalyst will be which connectivity technology (InfiniBand or Ethernet) ultimately becomes preferred by hyperscalers for AI cluster networking.

The stock is trading inside the ascending channel above the MA50 at the current price ($204.76) while the RSI is at 57.38 which is neutral-bullish. A breakout to above $208.69 would target $222.62 and $234.30. Next catalyst: Q2 FY2027 (late-August 2024).