Marvell's Q2 2026: Contradictions Emerge on Custom Business Growth, Optics Expansion, and Market Share Ambitions

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 28, 2025

Financials Results

• Revenue: $2.006B, up 58% YOY and 6% sequential
• EPS: $0.67 non-GAAP per diluted share, up 123% YOY (GAAP $0.22)
• Gross Margin: 59.4% non-GAAP (GAAP 50.4%); prior-year comparison not provided
• Operating Margin: 34.8% non-GAAP, up 870 bps YOY (GAAP 14.5%)

Guidance:

• Q3 revenue: $2.06B ±5% (36% YOY); excluding auto Ethernet, ~40% YOY.
• Data center flat sequential; YOY growth mid-30%.
• Electro-optics up double digits sequential; custom softer in Q3 but H2>H1 with Q4 substantially stronger.
• Enterprise networking + carrier: ~30% sequential growth; consumer down low-single digits; auto/industrial ~$35M.
• GAAP gross margin 51.5–52%; non-GAAP gross margin 59.5–60%.
• GAAP opex ~$719M; non-GAAP opex ~$485M.
• Non-GAAP EPS $0.69–$0.79; GAAP EPS $1.98–$2.08; non-GAAP tax 10%; diluted shares ~870M.
• GAAP other income/expense ~+$1.8B from divestiture gain.

Business Commentary:

• Record Revenue and Data Center Growth:
• Marvell Technology reported record revenue of $2.006 billion for Q2 FY2026, reflecting a 6% sequential increase and 58% year-over-year growth.

• The strong performance was driven by robust AI demand, with the data center end market showing 69% year-over-year growth.

• Operating Margin Expansion:

• Marvell expanded its non-GAAP operating margin by 870 basis points year-over-year to 34.8%.

• This expansion was due to strong revenue growth and operational efficiencies.

• Automotive Ethernet divestiture:

• Marvell completed the divestiture of its automotive Ethernet business for $2.5 billion, aligning with its strategy to focus on the massive AI opportunity.

• The proceeds provide flexibility for ongoing stock repurchase programs and technology platform enhancement.

• Custom AI Design Engagements:

• Marvell's custom AI design engagements continue to grow, with over 50 new opportunities identified, representing an estimated $75 billion in lifetime revenue potential.
• This increase is attributed to Marvell's leadership in custom silicon solutions and growing customer interest in AI infrastructure.

Sentiment Analysis:

• Management highlighted record revenue of $2.006B (+58% YOY, +6% sequential), non-GAAP operating margin expansion to 34.8% (+870 bps YOY), and record non-GAAP EPS of $0.67 (+123% YOY). Q3 outlook calls for $2.06B revenue (+36% YOY) with EPS up 10% sequential at the midpoint. Data center remains strong (mid-30% YOY in Q3) and enterprise networking/carrier expected to grow ~30% sequentially.

Q&A:

• Question from Ross Seymore (Deutsche Bank): What is driving the Q3 softness in custom and what supports a stronger Q4?
  Response: Custom is experiencing normal lumpiness and a one-quarter digestion; optics strength offsets in Q3, and custom rebounds with a strong Q4, leaving H2 above H1.

• Question from Jeremy Lobyen Kwan (Stifel): How much of H2 custom revenue is from new design wins versus existing programs?
  Response: New wins have grown meaningfully since June and, alongside existing programs, increase confidence in reaching a 20% share of the expanding data center TAM.

• Question from Jeremy Lobyen Kwan (Stifel): Are there supply constraints or tariff impacts affecting results?
  Response: Supply remains tight but Marvell is meeting customer needs via strong coordination; tariffs are being monitored with no material business impact to date.

• Question from Aaron Rakers (Wells Fargo): How concentrated is custom with the lead customer, and when do additional wins contribute?
  Response: Initial sockets are ramping; the 18+ sockets layer in over the next 18–24 months, diversifying revenue and supporting the path to 20% market share.

• Question from Aaron Rakers (Wells Fargo): How large is the scale-up/scale-across networking opportunity?
  Response: Marvell is investing in Ethernet and UALink-based scale-up switches leveraging low-latency switching and SerDes IP; it sees a significant multi-year opportunity.

• Question from Vivek Arya (BofA Securities): Can data center growth accelerate in Q4 and will 2026 growth track industry 50–60%?
  Response: No annual guide; near-term, custom rises H2 over H1 with Q4 stronger, and core enterprise/carrier recovery supports the setup.

• Question from Tom O'Malley (Barclays): Is Q3 custom softness a program wind-down or a timing pause?
  Response: It is a timing/delivery issue within existing programs; diversity will improve as more programs ramp.

• Question from Tom O'Malley (Barclays): Any optical supply constraints (e.g., lasers) impacting ramps?
  Response: Tight spots exist industrywide, but strong partnerships and planning are enabling continued high-volume ramps without major disruption.

• Question from Timothy Arcuri (UBS): What is the optics baseline and will AI (optics + custom) exceed 50% of revenue by Q3?
  Response: Prior mix had optics ~50% and custom ~25%; both have grown, but Marvell is not updating the exact mix or timing beyond indicating continued upward trend.

• Question from Harsh Kumar (Piper Sandler): How many of the 18 custom/attach wins are generating revenue now?
  Response: Several are already in production since late last year; the rest are moving into production now through next year.

• Question from Harsh Kumar (Piper Sandler): Are most wins tracking as planned amid investor controversy?
  Response: Programs are tracking; Marvell continues to add wins across major and emerging hyperscalers, staying focused on its 20% share goal.

• Question from Jim Schneider (Goldman Sachs): How will you deploy the auto Ethernet proceeds and could more divestitures occur?
  Response: Proceeds provide flexibility for opportunistic buybacks and selective AI-focused tuck-ins; the strategic lens remains AI-first capital allocation.

• Question from Harlan Sur (JPMorgan): Status of 3nm XPU follow-on and third 3nm XPU ramp timing?
  Response: Marvell will not comment on individual sockets; focus remains on executing ramps, expanding wins, and driving toward 20% share.

• Question from Quinn Bolton (Needham): When will scale-up switch products (Ethernet/UALink) ramp to revenue?
  Response: Product introductions for scale-up (Ethernet and UALink) are planned within the next two years.

• Question from Quinn Bolton (Needham): How do you view LPO module adoption versus DSP-based pluggables?
  Response: LPO is ramping at small scale and Marvell has wins, but it remains a niche; DSP-based pluggables dominate for the foreseeable future.