MRVL's Margin Pressure Mounts as AI Revenues Rise: Is it Sustainable?

Marvell Technology’s MRVL top line is growing on the back of custom AI silicon chips that are experiencing massive traction among hyperscalers. However, Marvell Technology’s gross margin has been moving inconsistently for the past several quarters, with a long-term declining trend.MRVL’s robust top-line growth is coming from the massive traction in its custom AI XPUs, electro-optics solutions and custom high bandwidth memory chips, which enable longer reach scale-up fabric connections for custom AI servers and improve bandwidth. The Co-Packaged Optics improves performance by increasing XPU density.However, Marvell Technology’s custom AI silicon, including XPUs, which are driving its revenue growth, comes with higher costs associated with manufacturing these chips. The margin in the AI-focused custom silicon semiconductor business is fundamentally lower, further affecting MRVL’s total gross margin.Marvell’s non-GAAP gross margin has declined 260 basis points from the year-ago quarter and 30 basis points sequentially to 59.8% in the first quarter of fiscal 2026. For the second quarter of fiscal 2026, MRVL has projected a non-GAAP gross margin range of 59% to 60%, which is lower than the second quarter of fiscal 2025’s gross margin of 61.9%.Nevertheless, as MRVL’s other business segments are on the path of recovery so this margin pressure might ease out in the long run.How Competitors Fare Against MRVLThe contraction in gross margin is not the only challenge faced by MRVL stock at present. The company also faces massive competitive pressure from Broadcom AVGO and Advanced Micro Devices AMD in the custom silicon solutions space.Broadcom’s advanced 3.5D XDSiP packaging platform is specifically designed to enhance the performance and efficiency of custom AI XPUs. Broadcom’s Semiconductor segment, which accounts for its custom silicon solutions, grew 11% year over year in the first quarter of fiscal 2025.Advanced Micro Devices’ custom silicon solutions and AI accelerators, like Instinct Accelerators, power numerous data centers. Advanced Micro Devices’ reconfigurable Alveo Adaptable Accelerator Cards are used to speed up compute-intensive applications in data centers.MRVL’s Price Performance, Valuation and EstimatesShares of Marvell have lost 32.2% year to date against the Electronics - Semiconductors industry’s growth of 13.3%.Image Source: Zacks Investment ResearchFrom a valuation standpoint, Marvell Technology trades at a forward price-to-sales ratio of 7.23X, lower than the industry’s average of 8.63X.Image Source: Zacks Investment ResearchThe Zacks Consensus Estimate for Marvell Technology’s fiscal 2026 and 2027 earnings implies year-over-year growth of 77.7% and 27.73%, respectively. The estimates for fiscal 2026 and 2027 have been revised upward in the past 30 days.Image Source: Zacks Investment ResearchMarvell Technology currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in the coming year. While not all picks can be winners, previous recommendations have soared +112%, +171%, +209% and +232%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report Marvell Technology, Inc. (MRVL): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks