EPS of $0.22 increased by 204.6% from previous year
Gross margin of 50.4%
Net income of 194.80M
"data center alone now driving 3/4 of our total revenue" - Matthew J. Murphy
Marvell Technology Inc (MRVL) QQ2 2026 Results Analysis: AI-Driven Data Center Momentum, Margin Expansion and Strategic Portfolio Realignment
Executive Summary
Marvell delivered a record quarterly revenue of $2.006 billion in QQ2 2026, up 58% year over year and 6% sequentially, driven by a data center surge amid robust AI demand. Data center revenue reached $1.49 billion and represented roughly three-quarters of total company revenue, with AI and cloud accounting for over 90% of data center sales. Non-GAAP gross margin expanded to 59.4% and non-GAAP operating margin to 34.8%, supported by strong operating leverage, delivering a non-GAAP EPS of $0.67 (+123% YoY). The company also generated $462 million of cash from operations and free cash flow of about $413 million, enabling meaningful share repurchases ($200 million in Q2; ~$540 million in H1) and a strategic capital-reallocation move following the $2.5 billion all-cash divestiture of the automotive Ethernet business. Management signals a continued AI-driven growth trajectory with a Q3 cadence that includes flat-to-kind-of-flat data center revenue sequentially and double-digit growth in electro-optics, alongside a broadened go-to-market with 18 XPU/XPU-attach sockets in production and a pipeline of >50 opportunities totaling multibillion-dollar lifetime revenue potential. Far-reaching strategic themes include accelerating data-center-scale AI interconnect via scale-up switches and UALink fabrics, expanding optical interconnects, and consolidating non-data center end markets into a Communications and Other segment moving forward. The 2028 target of capturing ~20% of a $94 billion data center TAM underscores the company’s AI-first pivot, though investors should monitor the lumpiness of custom AI programs and ongoing supply-chain and macro dynamics.
Key Performance Indicators
Revenue
2.01B
QoQ: 5.85% | YoY:57.60%
Gross Profit
1.01B
50.38% margin
QoQ: 6.11% | YoY:71.99%
Operating Income
290.10M
QoQ: 7.21% | YoY:400.93%
Net Income
194.80M
QoQ: 9.50% | YoY:200.78%
EPS
0.23
QoQ: 9.52% | YoY:204.55%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $2.006B, up 58% YoY, up 6% QoQ.
Gross margin: GAAP 50.4%; Non-GAAP 59.4%.
Operating margin: GAAP 14.5%; Non-GAAP 34.8%.
Net income: GAAP $194.8M; Non-GAAP EPS $0.67 (implied by $0.67 non-GAAP EPS and ~862.6M weighted shares).
Key quarterly metrics and trend highlights (QQ2 2026 versus prior periods):
- Revenue: $2.006B, up 58% YoY, up 6% QoQ.
- Gross margin: GAAP 50.4%; Non-GAAP 59.4%.
- Operating margin: GAAP 14.5%; Non-GAAP 34.8%.
- Net income: GAAP $194.8M; Non-GAAP EPS $0.67 (implied by $0.67 non-GAAP EPS and ~862.6M weighted shares).
- EPS: GAAP $0.22; Non-GAAP $0.67 (YoY EPS growth +123%).
- Data center composition: 74% of total revenue; data center YoY growth 69%; sequential growth 3%.
- End markets (Q2): Data center $1.49B; Enterprise networking + Carrier infrastructure combined $324M (+2% QoQ, +43% YoY); Consumer $116M (+84% QoQ, +30% YoY); Automotive/Industrial $76M (flat QoQ and YoY).
- Cash flow: Operating cash flow $462M; Free cash flow $413M.
- Balance sheet: Cash & equivalents $1.224B; Total debt $4.776B; Net debt $3.5519B; Net debt/EBITDA 1.19x; GAAP gross margin 50.4%, Non-GAAP gross margin 59.4%; Inventory ~$1.05B.
- Buybacks and dividends: Dividends paid $52M; Share repurchases $200M in Q2; ~ $540M repurchased in first half of fiscal year.
- Strategic event: Automotive Ethernet divestiture completed for $2.5B in cash; proceeds to support ongoing buybacks and AI-focused investments.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
2.01B
57.60%
5.85%
Gross Profit
1.01B
71.99%
6.11%
Operating Income
290.10M
400.93%
7.21%
Net Income
194.80M
200.78%
9.50%
EPS
0.23
204.55%
9.52%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ2 2026 earnings call grouped by themes:
- Strategy and capital allocation: The company completed the automotive Ethernet divestiture for $2.5B in cash, providing flexibility to continue buybacks and invest in AI capabilities. Management highlighted a disciplined capital-allocation framework and the potential for opportunistic tuck-ins, while maintaining a strong buyback cadence.
- Data center momentum and AI emphasis: Data center revenue was a record $1.49B, up 69% YoY, driven by custom XPU/XPU-attached products and electro-optics interconnects. AI and cloud accounted for over 90% of data center revenue; management reiterated a long-term aim to grow data center share from 13% of a $33B TAM in 2024 to 20% of a $94B TAM by 2028.
- Custom silicon and design-wins momentum: Design activity remains at an all-time high with >50 new opportunities and 18 sockets already in production or ramping; management signaled multi-billion dollar lifetime revenue potential from new sockets and emphasized a path to continued strong custom growth in the second half of the fiscal year and into 2027.
- Scale-up interconnect and optics: Sandeep Bharathi discussed scale-up switches and UALink fabric as a major growth driver for the next two years, with products expected in the market and AEC/AOC options expanding the interconnect portfolio. Optical interconnects (PAM/DCI) remain a leadership focus with 400G PAM progress highlighted.
- End-market recovery and portfolio simplification: Enterprise networking and carrier infrastructure show a robust recovery (2% QoQ, +43% YoY), while the divestiture reduces non-data center exposure. Beginning in Q3, the company will report as Data Center and Communications & Other, signaling a streamlined structure aligned with strategic focus.
- Operational execution: Management described tight supply chain coordination and strong execution to support the current ramp, despite ongoing industry-wide constraints; tariffs were noted as dynamic but not materially impacting MRVL to date.
data center alone now driving 3/4 of our total revenue
— Matthew J. Murphy
custom AI design engagements are at an all-time high with customers showing very strong interest in our broad range of differentiated technologies.
— Matthew J. Murphy
Forward Guidance
Near-term guidance and qualitative outlook:
- Q3 revenue target: $2.06B +/- 5% (implies a range of roughly $1.96B to $2.16B). The guidance includes mid-single-digit revenue from automotive Ethernet before the completion of the divestiture; without the divestiture, the impact would be approximately an additional ~$60M to the guide.
- Gross margins: GAAP 51.5%–52%; Non-GAAP 59.5%–60% for Q3, reflecting mix and ongoing leverage.
- OpEx: GAAP around $719M; Non-GAAP around $485M.
- Other income/expense: GAAP income around $1.8B due to divestiture-related gains; Non-GAAP around $33M expense.
- Tax rate: Non-GAAP tax rate projected at ~10%.
- Share count: Basic ~863M; Diluted ~870M.
- GAAP EPS: $1.98–$2.08; Non-GAAP EPS: $0.69–$0.79.
- Medium-term visibility: The company continues to emphasize a data center-led growth trajectory with an expanded 18-socket XPU/XPU-attach program and >50 opportunities; management reiterated a goal of achieving a 20% share of a $94B TAM by 2028 and highlighted the importance of scale-up Ethernet/UAlink interconnect as a growth engine.
Assessment of achievability and risks:
- Achievability: The Q3 guide aligns with the stated data center momentum (mid-30% YoY growth in Q3) and the optics AI-driven growth trajectory; the divestiture frees up capital for buybacks and strategic investment in AI platforms. The proximity of >50 design-wins and multiple new sockets ramping over the next 18–24 months supports the 2026–2028 trajectory.
- Risks to watch: (1) Lumpiness in custom XPU programs could temper near-term growth, though management expects H2 strength versus H1; (2) High dependence on hyperscaler demand and AI compute cycles exposes MRVL to semiconductor capex cycles; (3) Supply-chain tightness and potential tariff dynamics; (4) Transition risk as MRVL reorganizes reporting segments (Data Center vs Communications and Other) and as large-scale optics/interconnect programs scale; (5) Competition and alternative AI silicon/accelerator architectures impacting share gains.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MRVL Focus
50.38%
N/A
N/A
N/A
NVDA
75.10%
62.10%
28.50%
41.31%
INTC
35.40%
-7.96%
-1.40%
-20.52%
TSM
53.20%
42.50%
6.54%
29.32%
MU
36.80%
22.00%
3.25%
16.17%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
MRVL is navigating a pivotal transition from legacy storage/networking into a high-growth, AI-centric data center platform. The QQ2 2026 results underscore a robust top-line trajectory (revenue +58% YoY to $2.006B) and strong operating leverage, with data center revenue already representing ~74% of total revenue and non-GAAP gross margins sustaining near 60%. The automotive Ethernet divestiture provides a capital allocation runway for buybacks and AI-capability investments, while the expanded 18-XPU/XPU-attach socket program and a pipeline of >50 opportunities portend further ramp in the second half of FY2026 and into FY2027. Management’s targets—20% share of a $94B data center TAM by 2028—signal a multi-year growth thesis that could outpace broader semiconductor markets if execution remains disciplined and AI demand persists.
Nevertheless, the near-term path is exposed to lumpiness in custom silicon programs, potential supply-chain constraints, and macro swings in data-center capex. Investors should monitor: (1) conversion of current design-wins into revenue and the cadence of the next wave of sockets ramping into production; (2) progress and timing of scale-up switches (UALink) and optical interconnect adoption; (3) the impact of the Communications & Other segment on overall mix and margin; (4) the durability of hyperscaler AI demand and any policy/tariff shifts affecting supply chains; (5) further tuck-ins or strategic acquisitions that could accelerate MRVL’s AI roadmap.
Overall, MRVL offers a compelling AI-driven growth thesis, supported by solid cash generation, margin expansion, and a clear strategic shift toward data center leadership, though it carries elevated execution and macro risks typical of a high-growth, technology-intensive capex cycle.
Key Investment Factors
Growth Potential
The expansion of the data center TAM to $94B by 2028 with a target to capture 20% share implies a multi-year growth runway driven by custom XPU/XPU-attach programs, scale-up interconnect, and advanced optical interconnects. The 18 sockets currently in production and a design-win pipeline exceeding 50 opportunities suggest meaningful revenue contribution from custom silicon in the next 2–3 years. Optical interconnects (DCI/PAM) and scale-up Ethernet/UAlink switches are positioned to drive multi-year growth, supported by multi-hundred-million to multi-billion lifetime design wins.
Profitability Risk
Key risks include lumpiness of custom XPU programs, concentration risk around hyperscalers, macroeconomic demand softness affecting data-center tech spending, ongoing supply-chain constraints, and potential tariff/regulatory changes. The shift to a two-segment reporting framework (Data Center and Communications & Other) may complicate near-term visibility into sub-market dynamics. Competition from AI accelerators and alternative interconnect architectures also poses a long-run risk.
Financial Position
Balance sheet remains flexible but levered to support growth and buybacks. Cash and cash equivalents of $1.224B vs total debt of $4.776B yields net debt of $3.552B and net debt/EBITDA of 1.19x. Operating cash flow was $462M in the quarter with free cash flow of $413M. The $2.5B automotive Ethernet divestiture improves balance sheet resilience and provides capital for ongoing share repurchases and AI platform investments. The cash-flow dynamics combined with a strong gross margin profile (GAAP 50.4%; non-GAAP 59.4%) support a constructive capital-allocation stance.
SWOT Analysis
Strengths
AI-first data center focus with a large, expanding TAM and a multi-socket XPU/XPU-attach program (>18 sockets in production; >50 opportunities).
Strong gross and operating margin expansion with non-GAAP gross margin ~59.4% and non-GAAP operating margin ~34.8% in QQ2 2026, driven by scale and product mix.
Significant cash generation and improving balance sheet (OPCF $462M; FCF $413M; net debt/EBITDA 1.19x).
Strategic divestiture of automotive Ethernet provides capital to fund buybacks and accelerate AI platform investments; enables focus on core AI/data-center opportunities.
Leadership changes reinforce data center strategy (promotion of Chris Koopmans and Sandeep Bharathi).
Weaknesses
Lumpiness in custom XPU programs introduces near-term revenue volatility; Q3 is guided flat sequentially for data center with nonlinear custom growth.
High dependence on AI/ hyperscaler demand cycles and ongoing need for next-gen process nodes and manufacturing capacity.
Transition to a two-segment reporting framework may obscure sub-market dynamics in the near term.
Opportunities
Scale-up networking and interconnect (UALink and advanced Ethernet) as AI models scale across racks and data-center architectures.
PAM/DCI optical interconnects and 400G PAM leadership position; continued ramp in 200G PAM and beyond.
Continued expansion of custom silicon pipeline with >50 opportunities and potential for additional M&A tuck-ins to accelerate the AI roadmap.
Threats
Competitive pressure from AI accelerators and other custom silicon providers; potential pricing/margin pressures in a rapidly evolving AI market.
Macro headwinds and cyclicality of data-center spending; supply-chain disruptions and tariff dynamics could impact ramp timing.
Execution risk in ramping multiple high-complexity custom programs in parallel.