Is Marvell Stock a Buy on the Dip as AI Revenue Soars?

Shares of Marvell Technology (NASDAQ: MRVL) declined despite the company once again reporting strong data center and artificial intelligence (AI) revenue growth when it released its fiscal second-quarter earnings on Aug. 27. However, the stock is still up more than 150% year to date as of this writing.

Let's dive into the semiconductor company's latest results and prospects to see if this dip is a buying opportunity.

Robust data center revenue growth continues

Marvell has been a big beneficiary of the AI infrastructure build-out with both its connectivity and custom chip businesses. The company is a leader in optical DSP (digital signal processing) chips, which convert electrical data into optical signals for faster data transmission within data centers. This business is growing quickly as AI data centers move away from copper wiring to optical networks. It also has strong positions in broadband analog components and scale-out switching. It sees each of these businesses moving toward a $1 billion annual revenue run rate.

The company also has a strong custom chip business. Its IP (intellectual property) is used in Amazon's custom chips, and the cloud computing leader is currently its largest customer in this area. It's also involved with Microsoft's new Maia chip. However, the big buzz was about Marvell's recently announced partnership with Alphabet that includes inference accelerators, storage controllers, NICs, memory interface controllers, and near-memory compute. Marvell said the deal is broad-based and a game changer for the company, although it looks like it won't become a meaningful contributor until fiscal 2029 (calendar year 2028).

As for its results, its overall revenue jumped by 37% year over year to $2.74 billion, while its adjusted earnings per share (EPS) soared 40% from $0.67 a year ago to $0.94. Those results were just ahead of the midpoint of management's outlook for adjusted EPS of $0.93 on revenue of $2.7 billion.

Data center revenue jumped 46% year over year in the quarter to $2.17 billion. Communication and other end market revenue, meanwhile, rose 10% year over year to $567.8 million.

Looking ahead, Marvell management guided for fiscal 2027 Q3 revenue of $3.15 billion, plus or minus 5%, which represents year-over-year growth of about 52%. It is looking for adjusted EPS of $1.05 to $1.15. Third-quarter data center revenue is projected to surge by 75%.

It also upped its fiscal 2027 revenue growth outlook, taking it from $11.5 billion to $12 billion, representing 45% growth. Its data center business is now projected to grow 60%, up from a prior forecast of 50%. Data center growth is expected to be broad-based, with a significant acceleration in its custom chip business in the second half of fiscal 2027 and into fiscal 2028.

It is now projecting fiscal 2028 revenue to climb 50% to $18 billion, up from an earlier forecast of $16.5 billion. Its data center business is projected to grow by 60%, while its custom chip business is expected to more than double.

Image source: The Motley Fool.

Is it time to buy the dip?

Marvell has gone from a cheap stock, due to worries it was losing its lead partnership position with Amazon's custom chips, to an expensive stock riding a big optical interconnect wave. Even after this recent dip, the stock now trades at a forward price-to-earnings (P/E) ratio of under 34 times fiscal 2028 estimates (ending January).

The company's deal with Alphabet should kick in around the same time it loses any potential growth tied to future iterations of Amazon chips, which is a big win. Meanwhile, its optical opportunity is still in its relatively early stages and has the potential to be a huge growth driver. While I wouldn't jump on the stock right now, I do think it would become interesting on any further pullback.

Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Marvell Technology, and Microsoft. The Motley Fool has a disclosure policy.