Marvell Technology's Next Earnings Report on Aug. 27 Could Send the Stock Soaring. Here's Why.

Marvell Technologies (NASDAQ:MRVL) heads into tomorrow's fiscal second-quarter earnings for 2027 with huge expectations from the market. The stock has increasingly served as a bellwether for the growing artificial intelligence (AI) ecosystem.

Beyond the actual Q2 results (for the quarter that ended on Aug.1), investors will be watching whether the semiconductor infrastructure company's role in the AI infrastructure build-out is growing faster than the market expects, including how management frames its forward-looking commentary.

Image source: The Motley Fool.

The Google deal implications are way bigger

The semiconductor industry is highly cyclical. Chip design and manufacturing enjoy upcycles during higher macro spending and chip shortages. These periods are almost always followed by downcycles, during which cloud providers and other enterprises pause orders to clear excess inventory, usually driven by tightening macroeconomic conditions.

However, Marvell is capitalizing on the secular demand for artificial intelligence by signing long-term contracts with hyperscalers, which provide greater future revenue visibility.

CEO Matt Murphy has previously stated that the company's growth strategy involves diversifying its customer base. On Aug. 19, Marvell announced a $12.2 billion deal with Google to develop custom chips for its data centers. These products will be part of Google's AI inference hardware, complementing its tensor processing unit (TPU) ecosystem.

The deal could generate $120 billion in revenue for Marvell over the next seven years, according to analysts at Stiefel.

While companies such as Broadcom (NASDAQ:AVGO) specialize in core AI compute processing units, Marvell's strength lies in infrastructure hardware for data centers, such as inference accelerators, near-memory compute, and network interface controllers (NICs).

As a pick-and-shovels story in the AI ecosystem, Marvell may well become one of the critical suppliers of custom AI chips to hyperscalers.

The real earnings catalyst is 2027 guidance

Marvell's share price rose more than 10% after the Alphabet deal announcement. However, markets will be looking to understand the deal's real impact on revenue guidance for fiscal years 2027 and 2028.

For the second quarter, revenue is expected to be $2.71 billion, with consensus earnings per share (EPS) of $0.93.

What will move the needle on the stock price tomorrow is higher-than-expected guidance from management, with the Google deal as a significant driver.

The average price target from 44 Wall Street analysts is $266, representing an 11% upside from today's levels. Tomorrow's guidance can push up that price target.

Marvell is increasingly a "picks-and-shovels" AI investment

People are generally aware of Nvidia (NASDAQ:NVDA) and Broadcom, which provide core AI compute processors. Marvell, however, operates in a different section of the AI infrastructure stack. Its business includes custom silicon such as AI accelerators and specialized networking hardware used to transfer data at lightning speeds.

In a real sense, Marvell's performance could be seen as a barometer of the expansion of border AI infrastructure. So positioning itself as a critical player in the enormous ecosystem means the market will be watching for signs of further growth.

MRVL data by YCharts.

Usage growth in custom AI silicon (outside core compute AI processors), coupled with pricing power, could ensure gross margins continue to inch upward, just as they have over the last three years.

High valuations are a risk

Marvell stock is trading at a trailing price-to-earnings (P/E) ratio of nearly 83, and over 24 times trailing 12-month sales. That leaves very little room for a misstep. Any slowdown in demand for its products that involves revising guidance or estimates lower will see the stock tumbling.

The Google deal involves the search giant obtaining a warrant to buy nearly 59 million shares in Marvell, which could essentially dilute the chipmaker's outstanding shares by nearly 7%. So, a high valuation coupled with dilutive long-term factors isn't a great combination for shareholders should the market turn south.

Isac Simon has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, Marvell Technology, and Nvidia. The Motley Fool has a disclosure policy.