The super cycle of AI optical connectivity: Has Marvell secured the most comprehensive ticket?
Author | Eric
Marvell's data center revenue growth is currently mainly driven by optoelectronic interconnect products. The company previously stated that optoelectronic interconnect product revenue accounts for 50% of data center revenue, while ASIC makes up 25%. The remaining revenue comes from a portfolio of data center storage, switching, and security products. Marvell’s full range of optoelectronic interconnect products includes DSPs for active electrical cables (AEC) and active optical cables (AOC), Retimers for PCIe, Ethernet, and UA Link, as well as silicon photonics technology for near-packaged and co-packaged XPU optics.
Global AI interconnection chip giant $Marvell Technology (MRVL.US)$ After reporting its FY2026 Q4 earnings, the stock price surged over 14% in after-hours trading. Let’s take a closer look at this earnings report.
Overview of key financial metrics for FY26 Q4:
- RevenueUSD 2.22 billion, growing by22%, representing a 7% increase quarter-over-quarter but falling short of the market consensus expectation of USD 2.26 billion. The company’s previous guidance was USD 2.2 billion.
- GAAP gross margin51.7%, an increase of 1.2 percentage points year-over-year and 0.1 percentage points quarter-over-quarter, surpassing the market consensus expectation of 51.3%. The upper limit of the company’s previous guidance was 52.1%. Non-GAAP gross margin59%, declining by 1.1 percentage points year-over-year and 0.7 percentage points quarter-over-quarter, falling below the market consensus expectation of 59.1%. The upper limit of the previous guidance was 59.5%.
- GAAP net profitUSD 396 million, growing by98%, exceeding the market consensus expectation of USD 297 million. The upper limit of the previous guidance was USD 309 million. Non-GAAP net profitUSD 685 million, growing by29%, surpassing the market consensus expectation of USD 678 million. The upper limit of the previous guidance was USD 677 million.
Key highlights of this earnings report:
1. Raised revenue guidance for FY27 and FY28, with expected FY28 EPS surpassing $5
The main catalyst that truly stimulated the post-market share price surge was the management's upward revision of a series of guidance figures.FY27 revenue is expected to increase from $10 billion to $11 billion, with similarly strong quarter-on-quarter growth anticipated for each quarter this fiscal year. FY27 Q4 revenue is expected to exceed $3 billion.
What excited the market even more was the management’s forecast ofFY28 revenue exceeding $15 billion、and EPS surpassing $5, showing an accelerating growth trend compared to FY27. The management stated that the overall revenue expectation increase comes entirely from the data center business.
2. It is expected that the future growth rate of the data center interconnect market will outpace hyperscaler CapEx growth.
This quarter's data center revenue1.65 billion US dollars, growing by21%, up 9% quarter-over-quarter, slightly higher than the market consensus expectation of 1.64 billion US dollars, accounting for 74% of revenue and representing the company's largest business segment.
This quarter, demand for 800G products in the data center interconnect business within the scale-out PAM product line remains very strong. Several Tier 1 customers have placed substantial bookings for 1.6T solutions, with these products entering mass production in the second half of fiscal year 2026. Revenue from 1.6T products is expected to grow significantly in FY2027 and continue to expand rapidly in FY2028. However, 800G will remain stronger and last longer, with 800G shipments still dominating this year. In the scale-across interconnect product line, DCI modules are expected to be supplied to all five major U.S. hyperscalers by this year. Within the scale-up interconnect product line, Celestial AI’s Photonic Fabric technology is driving large-scale deployment of CPO starting next year, with projected run-rate revenue of 500 million US dollars by FY28Q4 and 1 billion US dollars by FY29Q4. The total addressable market (TAM) for the scale-up interconnect market is expected to exceed 10 billion US dollars by 2030. In the AEC market, design orders have been secured from three Tier 1 U.S. hyperscalers, and demand for Retimer products remains robust.AEC and Retimer combined revenue is expected to double by FY27.。
In general,management explicitly stated that the growth rate of the interconnect business will significantly outpace the growth of cloud capital expenditures (CapEx).This is particularly reassuring to the market amid growing concerns about a potential slowdown in cloud giants' CapEx going forward.
3. XPU business to see significant growth in FY28, with revenue from the XPU attach business expected to double annually.
Despite being embroiled in $Amazon (AMZN.US)$ the AWS Trainium3 order loss controversy, the company’s XPU business revenue still doubled year-over-year in FY26.XPU revenue for FY27 is expected to increase by more than 20% year-over-year，XPU revenue for FY2028 is expected to double year-over-year, primarily driven by new Tier 1 XPU projects entering mass production and several XPU attach projects beginning to ramp up in FY27.
As for the XPU attach business that the market has long overlooked, management stated that demand for CXL is accelerating, partly due to tight memory supply. Customized CXL expanders can help customers continue using older-generation DRAM with next-generation XPUs, GPUs, and CPUs while supporting near-memory compute operations.XPU attach revenue is projected to be around USD 200 million in FY26, doubling to USD 500 million in FY27, reaching USD 1 billion in FY28, and further doubling to USD 2 billion in FY29, becoming a new growth driver for the company.
Overview of FY27 Q1 guidance:
The company expects Q1 revenue2.4 billion US dollars, growing by27%, increasing 8% quarter-over-quarter, surpassing market consensus of USD 2.27 billion. Non-GAAP gross margin is expected to be59.3%, with Non-GAAP operating profit at USD 847 million, a 31% year-over-year increase, and Non-GAAP net profit at USD 698 million, growing year-over-year29%, representing a 2% quarter-over-quarter increase, surpassing the market consensus expectation of $660 million.
The company forecasts Q1 data center revenue at$1.82 billion, growing by26%, marking a 10% quarter-over-quarter growth and exceeding the market consensus of $1.72 billion. The on-premise data center business experienced a seasonal decline, while communications and other revenues reached $580 million, reflecting a 28% year-over-year increase.
Post-Earnings Options Strategy Outlook
The highlight of Marvell's earnings report this time is that the management continues to raise the growth targets for AI and data centers over the next two years. Comparing the after-hours stock price movement with the pre-earnings options market pricing, this guidance has exceeded the expected volatility. The bullish options positions might have gained. More importantly, what options strategies can be deployed post-earnings? This requires a view-based approach.
Strategy One: Bullish, but not willing to chase at high levels
A bull call spread would be more suitable.
The reason is simple: the implied volatility of short-term options usually drops significantly after earnings reports. Buying short-term naked calls directly could easily result in being correct on direction but still losing profits due to IV decline. Using a spread strategy allows maintaining a bullish stance while reducing cost and volatility risk.
Strategy Two: Expecting short-term consolidation
An Iron Condor could be considered.
The rationale is that the most likely scenario after an earnings release isn't continued one-sided surges but rather the market digesting expectations first and the stock price moving into a range-bound pattern. During this phase, earning time decay often offers better value than chasing direction. However, the prerequisite is to maintain a defined-risk structure; selling naked options is not suitable.
Summary
Overall, previous market concerns $Marvell Technology (MRVL.US)$ about an extended earnings vacuum period before FY28 were addressed by management with sequential quarter-over-quarter growth guidance. Additional details for FY28 performance were provided, highlighting strong growth in existing businesses such as scale-out, scale-across AI, and XPU, alongside a rapid push into the emerging AI scale-up market.
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Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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