Marvell stock slips 8% on margin guidance despite strong AI bookings

Marvell's quarterly results were strong on nearly every front: revenue beat guidance by $39 million, data center revenue grew 46% year over year to $2.17 billion, and the company raised its fiscal 2027 outlook to about $12 billion. Yet the stock fell about 8% after hours, a reaction tied to the one figure moving the wrong way: gross margin. Non-GAAP gross margin came in at 58.9%, unchanged from the prior quarter but below 59.4% a year ago, and management guided the fiscal third quarter to a range of 57.5%–58.5%.

The margin pressure stems from the growth of custom chips for large cloud customers. CFO Dan Durn attributed the trend to revenue levels and product mix, noting the accelerating custom chip business. That business now accounts for 79% of revenue, up from 74% a year ago, and the ramp is expected to continue in the second half of fiscal 2027. The trade-off is clear: stronger growth at the cost of lower margins.

The stock's valuation remains a concern even after the drop, trading at about 35 times expected earnings for the next fiscal year. Shares have more than tripled from a 52-week low of $61.44, suggesting investors may have priced in growth with margins intact. The upcoming investor day on Oct. 6 could provide more clarity on how large the custom chip opportunity might become.