Marvell Technology delivered a strong fiscal second quarter performance, showcasing the company’s strategic shift toward AI infrastructure is gaining meaningful traction. The semiconductor specialist reported earnings Thursday that exceeded Wall Street expectations, primarily driven by robust growth in its data center business.
Revenue reached $1.26 billion, slightly above analyst projections, but the real story lies in the company’s substantial growth in AI-related segments. CEO Matt Murphy highlighted that data center revenue surged 36% sequentially and 113% year-over-year, reaching $555.3 million – now representing 44% of Marvell’s total revenue.
“Our data center business reached a new quarterly record with strong sequential growth,” Murphy told investors during the earnings call. “This was primarily driven by AI, where we are seeing accelerating customer demand for our products across compute, electro-optics and custom solutions.”
This performance comes against a backdrop of continued softness in Marvell’s enterprise networking and carrier infrastructure segments, which declined 6% and 8% respectively from the previous quarter. The contrast illustrates how AI infrastructure investments are bucking broader semiconductor industry trends.
Financial analysts have noted the significance of Marvell’s AI revenue acceleration. Stacy Rasgon at Bernstein Research pointed out that the company appears to be hitting an inflection point in its transformation. “The AI strength is real, and Marvell seems well-positioned across multiple vectors in the data center,” Rasgon wrote in a research note.
From a profitability perspective, Marvell reported adjusted earnings of 30 cents per share, slightly above consensus estimates of 29 cents. More importantly, gross margins improved to 61.5%, up from 60.8% in the previous quarter, suggesting the shift toward higher-value AI products is enhancing the company’s profitability profile.
The Federal Reserve’s recent economic outlook may provide additional tailwinds for Marvell. With inflation showing signs of moderation and potential interest rate cuts on the horizon, enterprise spending on technology infrastructure could accelerate in coming quarters. The Philadelphia Semiconductor Index has already risen nearly 30% this year, reflecting optimism about the sector’s prospects.
Murphy was particularly enthusiastic about Marvell’s custom ASIC business, which develops specialized chips for AI applications. “Our custom ASIC pipeline continues to grow rapidly, and we are now engaged with most of the world’s leading AI companies,” he said. This represents a significant opportunity as hyperscalers and AI startups seek to develop proprietary silicon tailored to their specific workloads.
Marvell’s electro-optics portfolio, which includes high-speed interconnect solutions critical for AI clusters, is also seeing substantial demand. The company has begun shipping 1.6 terabit PAM4 DSPs and expects volume to ramp significantly in the second half of fiscal 2025. These components are essential for the massive data movement requirements of large AI training clusters.
Looking ahead, Marvell provided guidance that suggests continued momentum. The company expects fiscal third quarter revenue of approximately $1.35 billion, representing about 7% sequential growth. Management projects the data center segment will grow by 20% sequentially, further increasing its contribution to overall revenue.
Not all is rosy, however. Marvell continues to face headwinds in its automotive and consumer businesses, which declined 5% and 33% year-over-year respectively. The broader semiconductor industry also remains in recovery mode, with global chip sales only recently returning to growth after a prolonged downturn.
The Financial Times recently reported that global semiconductor capital expenditure is expected to reach record levels in 2024, primarily driven by AI-related investments. Marvell appears well-positioned to capture a significant portion of this spending through its comprehensive portfolio of data center products.
Industry analysts at Goldman Sachs estimate the total addressable market for AI semiconductors could exceed $250 billion by 2028, representing a compound annual growth rate of over 25%. Marvell’s expanding footprint across compute, networking, and storage positions it to address multiple aspects of this growing market.
The company’s performance stands in contrast to some peers who have struggled to translate AI hype into tangible financial results. Murphy emphasized that Marvell’s AI revenue is derived from products already in production and shipping to customers, rather than speculative future design wins.
While investor enthusiasm for AI semiconductor plays remains high, the sustainability of growth rates will be closely watched. Marvell’s management acknowledged that customer inventory levels and capacity expansion timelines could create quarterly variability in results.
For investors, Marvell presents an intriguing opportunity to gain exposure to AI infrastructure buildout without the extreme valuation multiples of some pure-play AI companies. The stock trades at approximately 32 times forward earnings, reflecting expectations for continued growth but not at the stratospheric levels seen elsewhere in the sector.
As data centers continue their transformation to support increasingly complex AI workloads, Marvell’s strategic positioning across multiple critical components could drive sustained growth. The company’s execution will be closely monitored as competition in the AI semiconductor space intensifies.
