Marvell Technology Inc (NASDAQ: MRVL) reported better-than-expected results across the board for the second quarter of fiscal 2027, with revenue reaching $2.739 billion (up 37% year-over-year and 13% sequentially) and non-GAAP earnings per share of $0.94, both surpassing the midpoint of guidance. The company raised its full-year fiscal 2027 revenue outlook from approximately $11.5 billion to roughly $12 billion (growth of about 45% year-over-year), and significantly lifted its fiscal 2028 revenue projection from $16.5 billion to approximately $18 billion (growth of about 50% year-over-year).

The data center segment remains the primary growth engine, contributing $2.17 billion in Q2 revenue (up 46% year-over-year), representing 79% of total revenue, with expectations of over 20% sequential growth and approximately 75% year-over-year growth in Q3, plus roughly 60% growth for the full fiscal 2027 year. Communications and other businesses generated $568 million in Q2 (up 10% year-over-year), though Q3 is expected to decline 10%-15% sequentially.

New CFO Dan Durn emphasized that the company stands at a "unique inflection point," targeting the upper end of its 38%-40% long-term non-GAAP operating margin range by the fourth quarter and reaching that same level throughout fiscal 2028.

Where the action is concentrated

The central focus of the call revolved around the company's custom silicon collaboration with Google. JPMorgan's Harlan Sur pointed out that the six-year commercial agreement signed in late July represents cumulative revenue of $120 billion, with annual revenue from Google's XPU-attached custom ASICs alone reaching approximately $18.5 billion. He pressed for clarification on whether the fiscal 2029 custom business revenue target of $10-$11 billion would be substantially revised upward.

CEO Matt Murphy responded that the agreement covers a broad product portfolio including inference accelerators, storage controllers, network interface cards, and memory interface controllers. The majority of revenue impact will materialize in fiscal 2029 and beyond, with the custom business expected to "more than double year-over-year" in fiscal 2028 and "accelerate significantly" in fiscal 2029. Murphy clearly stated, "There is significant upside in the custom business revenue numbers for fiscal 2029 and beyond," committing to provide a comprehensive analysis at the October 6 Investor Day.

When Bank of America's Vivek Arya inquired about another major XPU project, Murphy indicated the project is "making progress every quarter, and things are only getting better."

Scale Optics takes center stage

Scale Optics emerged as the second hottest discussion topic. Wells Fargo's Aaron Rakers asked about the progress of CXL and scalable optical technologies. Murphy emphasized that CXL technology is "very well suited for memory expansion and inference," noting new design wins over the past several quarters.

On the Scale Optics front, he provided a critical update: the entire Scale Optics segment, including CPO and NPO, is growing at a pace "far exceeding expectations from three months ago," with the $15 billion fiscal 2028 funding plan "largely attributable to this segment." The NPO opportunity is developing "much faster than CPO," with Marvell deeply engaged through its proprietary optical engine solutions and silicon-germanium broadband analog products (TIAs and drivers).

Morgan Stanley's Joe Moore probed the transition path from copper scale-out to optical fiber. Murphy responded that Marvell's Teralynx switch architecture has achieved tremendous success in the Ethernet space and can "seamlessly transition to scale-up." He stressed that customers require "end-to-end complete solutions," noting that "standalone fragmented solutions cannot accomplish the task."

Cantor Fitzgerald's CJ Muse raised NVIDIA's perspective on compute, network, and memory interchangeability. Murphy stated that Marvell "must possess the capability to rapidly execute custom and semi-custom designs," citing CXL and memory expansion as prime examples.

Goldman Sachs' Jim Schneider asked about connectivity growth rates. Murphy confirmed that connectivity represents the "largest driver" of the $15 billion funding plan, encompassing optical DSPs, scale-out transceivers, switches, and the full product line.

Financial outlook and margin trajectory

For the third quarter of fiscal 2027, Marvell projects revenue of $3.15 billion (plus or minus 5%), representing 15% sequential growth and over 50% year-over-year growth. Non-GAAP gross margin is expected between 57.5% and 58.5%, with non-GAAP diluted EPS projected between $1.05 and $1.15.

Durn indicated that fiscal 2027 non-GAAP operating expenses would be approximately $2.55 billion, reflecting the larger revenue growth opportunities, while operating leverage should drive non-GAAP operating margins into the 38%-40% long-term target range by the fourth quarter. For fiscal 2028, the company expects non-GAAP operating expense growth at roughly half the revenue growth rate, with margins reaching the upper end of that range.

The company remains committed to approximately $1 billion in capacity prepayments to suppliers in fiscal 2027, funded through its strong balance sheet and robust operating cash flow, while continuing share repurchases to offset dilution.