Marvell earnings on deck: Can Google deal fuel AI chip growth?

Marvell Technology Inc. is set to release its fiscal second-quarter earnings on Thursday, with investors keen on assessing the impact of a recent partnership with Google on the chipmaker's growth in custom artificial intelligence silicon. Analysts are projecting earnings per share of 93 cents and revenue of $2.71 billion for the July quarter, representing year-over-year increases of 39% and 35%, respectively.

Wall Street's estimates have recently risen, with EPS forecasts growing by 0.37% over the past 60 days and revenue estimates increasing by 0.31% during the same period. These expectations signify a notable improvement from Marvell's prior quarter, where the company reported 80 cents in earnings on $2.42 billion in revenue, both slightly exceeding analyst forecasts.

The Street now anticipates a 16% earnings growth and 12% revenue growth from the May period, a period that ended in May. Marvell is currently favored by 38 out of 44 analysts covering the stock, with six analysts rating it as a hold and no sell recommendations. The consensus price target of $269.28 suggests a potential 10% increase from the stock's $245.11 closing price on Wednesday.

Notably, several firms, such as Wells Fargo and Rosenblatt, have recently raised their price targets for Marvell, to $310 and $300, respectively.

Last week, Marvell announced an expanded agreement with Google to develop custom chips for AI inference accelerators, storage controllers, network interface controllers, and other products related to Google's tensor processing unit ecosystem. The deal includes a warrant structure consisting of 240 tranches, which could reach $120 billion in cumulative revenue through fiscal 2033 if fully realized.

This partnership expands Marvell's client list to include a third major hyperscaler, alongside Amazon's Trainium and Microsoft's Maia chips.

Investors will closely monitor updates on Marvell's pipeline for these programs and any adjustments to management's targets for custom silicon revenue. Currently, custom silicon revenue is estimated at approximately $4 billion in fiscal 2028 and over $10 billion in fiscal 2029. Moreover, analysts are paying attention to momentum in Marvell's optical interconnect business, with the AI optical transceiver market projected to expand by 57% in the current year to reach $26 billion.

This surge is attributed to the increasing demand for high-speed data center connectivity. Industry experts from Susquehanna to UBS have highlighted the strength of Marvell's optical interconnect components, including digital signal processors, transceivers, and retimers, as AI networking requirements intensify. As a result, revenue guidance for the current quarter will be crucial for investors in determining whether Marvell can maintain its growth trajectory.

Despite the company's impressive performance driven by data center AI spending, its valuation at 58 times forward earnings indicates limited room for disappointment as competition in the custom chip market continues to intensify.