Marvell Has Raised Its Growth Outlook 3 Times Since December. The Stock Still Sits 28% Below Its High.

Marvell Technology (NASDAQ:MRVL) CEO Matt Murphy spent Tuesday evening on CNBC's Mad Money making the case that the chipmaker has become one of the artificial intelligence (AI) build-out's essential suppliers.

"We are basically the Switzerland of this entire market right now, we work with everybody," Murphy said.

He described a customer list that now includes custom chip work for all four of the biggest U.S. cloud computing companies.

And the company has been raising the actual numbers to match. The revenue outlook it gave in December for the fiscal year now underway was about $10 billion. Today it is about $12 billion -- and roughly $18 billion for the year after that.

Shares, meanwhile, have more than tripled over the past year -- but they trade near $239 as of this writing, down about 28% from a 52-week high of $329.88.

Which reading do the reported numbers support -- the CEO's or the market's?

Image source: The Motley Fool.

Three raises in nine months

The December numbers came on the company's Dec. 2 earnings call, where Murphy framed data center revenue growth at more than 25% for fiscal 2027 (the year ending in late January 2027). Run that math for the following year, and the implied fiscal 2028 figure was around $13 billion.

Both years' outlooks have been raised three times since. Management lifted them in March and again in May.

Then, in late August, the fiscal 2027 outlook went from $11.5 billion to about $12 billion, roughly 45% growth. The fiscal 2028 outlook went from $16.5 billion to about $18 billion, or about 50% growth. Data center revenue is now expected to grow about 60% this fiscal year and even faster next year.

Put another way, the improvement Murphy described on Tuesday is already on the books.

The reported numbers back it up

Marvell's revenue rose 22% year over year in the quarter that ended in January. Growth then picked up to 28% in the fiscal first quarter of 2027 and 37% in the fiscal second quarter (the period ended Aug. 1), when revenue reached a record $2.739 billion. For the current quarter, management guided for revenue of about $3.15 billion, which at the midpoint implies growth of about 52%. That makes two straight quarters of acceleration, with a third implied.

Capturing where the strength is concentrated, data center revenue climbed 46% year over year in the fiscal second quarter to about $2.17 billion, or 79% of Marvell's total. That was an acceleration from 27% growth in the prior quarter. And management expects the segment's growth to reach about 75% year over year in the current quarter as custom AI chip production ramps.

Also worth noting, management guided for non-GAAP (adjusted) earnings per share of $1.10 in the fiscal third quarter, up from $0.94 in the second. I find it hard to call that a deteriorating outlook.

So why is the stock 28% below its high?

However, the market has its reasons. Custom chips carry lower gross margins than the rest of Marvell's portfolio, and that trade-off is starting to show. Guidance calls for a non-GAAP gross margin of 57.5% to 58.5% in the fiscal third quarter, down from 58.9% in the second. The stock fell about 10% the day after the late-August report and slid further into early September, though it has recovered part of the drop over the past week.

Competition is a second concern. On Tuesday, Qualcomm announced a multi-generation collaboration to build custom chips for AI data centers with Amazon, a longtime Marvell customer.

Murphy's answer is that Marvell works with everybody. But the deal shows the cloud giants like having more than one supplier, and more deals like it could follow.

And then there's the price: Shares trade at about 57 times this fiscal year's expected earnings. Measured against next fiscal year's expected earnings, though, the price-to-earnings ratio drops to about 36. It's a big multiple for most companies, but arguably a reasonable one for a business management expects to grow about 50%.

So, whose reading do the numbers support? Mostly Murphy's, I think. Revenue growth has accelerated for two straight quarters, the outlook has gone up with every report this year, and the cost so far is about a point of gross margin.

Of course, the $18 billion is a forecast, not a booking. Demand for AI chips could cool, and shares that sit this far below their high can keep falling.

Zoom out, though, and the growth stock's price looks far more sensible than it did at the high.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Marvell Technology, and Qualcomm. The Motley Fool has a disclosure policy.