Marvell Stock Soars 23% as Strong Demand for Custom Artificial Intelligence (AI) Chips Drives Q3 Results and Guidance Above Expectations

Shares of Marvell Technology (NASDAQ: MRVL) surged 23.2% on Wednesday following the data infrastructure semiconductor specialist's release on the prior afternoon of its report for the third quarter of its fiscal year 2025 (ended Nov. 2, 2024).

Investors' positive reaction can be attributed to the quarter's revenue and earnings beating Wall Street's consensus estimates, and fourth-quarter guidance for both the top and bottom lines speeding by analysts' expectations.

Powerful demand for artificial intelligence (AI) capabilities was the driver of Marvell's quarterly growth and better-than-expected guidance.

Marvell Technology's key numbers

Data source: Marvell Technology. YOY = year over year. GAAP = generally accepted accounting principles. Fiscal Q3 2025 ended Nov. 2, 2024.

Investors should focus mainly on the adjusted numbers, which exclude one-time items. Adjusted net income excludes $715.1 million in restructuring charges, $264.9 in amortization of acquired intangible assets, $158.4 million in stock-based compensation, and a few other smaller positive and negative items.

Wall Street was looking for adjusted EPS of $0.40 on revenue of $1.45 billion, so Marvell surpassed both expectations.

In the quarter, Marvell generated cash of $536.3 million running its operations, up 7% from the year-ago period. The company ended the quarter with cash and equivalents of $868.1 million, up 7% from the prior quarter, and long-term debt of $3.97 billion on its balance sheet.

Performance by end market

Data source: Marvell Technology. YOY = year over year.

The data center end market's phenomenal growth of 98% year over year was driven by strong demand for the company's AI-related products. These mainly include its custom AI chips -- which are application-specific integrated circuits (ASICs) -- and interconnect products for AI-enabled data centers.

In fiscal Q3, the data center end market accounted for a whopping 72% of Marvell's total revenue. This is up from just 39% in the year-ago quarter, clearly showing how the company's business profile has changed considerably in just one year.

The other four end markets continued to struggle on a year-over-year basis, dragging down the company's overall results. This is a semiconductor industrywide phenomenon, not specific to Marvell.

What the CEO had to say

In the earnings release, CEO Matt Murphy commented on the quarter's results and the outlook for Q4:

Marvell's fiscal third quarter 2025 revenue grew 19% sequentially, well above the mid-point of our guidance, driven by strong demand from AI. For the fourth quarter, we are forecasting another 19% sequential revenue growth at the midpoint of guidance, while year-over-year, we expect revenue growth to accelerate significantly to 26%, marking the beginning of a new era of growth for Marvell.

The exceptional performance in the third quarter, and our strong forecast for the fourth quarter, are primarily driven by our custom AI silicon programs, which are now in volume production, further augmented by robust ongoing demand from cloud customers for our market-leading interconnect products.

Moreover, in addition to expecting a "strong finish to this fiscal year," Murphy said management projects the "substantial momentum to continue in fiscal 2026."

Guidance

For the fiscal Q4 (which ends in late January/early February 2025), management expects:

• Revenue of $1.80 billion, which equates to growth of 26% year over year.
• Adjusted EPS of between $0.54 and $0.64, which equates to growth of 17% to 39% (28% at the midpoint).

Going into the release, Wall Street had been expecting fiscal Q4 adjusted EPS of $0.52 on revenue of $1.65 billion, so Marvell's outlook sprinted by both expectations.

Management sees accelerating growth on the horizon

Marvell's overall fiscal Q3 results were just so-so with year-over-year revenue and adjusted EPS only increasing a modest 7% and 5%, respectively.

But its fiscal Q4 guidance looks great, with expected revenue growth of 26% year over year and adjusted EPS growth of 17% to 39%. This robust outlook reflects management's confidence that strength in its AI-powered data center end market will continue and that demand in some of its other markets will improve.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends Marvell Technology. The Motley Fool has a disclosure policy.