Marvell (MRVL) Q3 2026: Data Center Revenue Jumps 38% as Celestial AI Deal Targets $1B Run Rate
Marvell’s Q3 marked a decisive pivot to AI-driven data center growth, with the Celestial AI acquisition positioning the company for a new wave of optical interconnect leadership. Robust data center demand and a full-year revenue outlook approaching $10 billion signal sustained momentum, while management’s multi-year guidance and customer visibility set a new bar for sector transparency. Investors should watch execution on next-gen custom silicon and the integration of Celestial AI as the company seeks to outpace hyperscale capex growth through 2028.
Summary
- AI Infrastructure Tailwind: Data center and optical interconnect demand are driving outperformance and multi-year growth visibility.
- Celestial AI Acquisition: The deal positions Marvell to lead the scale-up optical interconnect market with disruptive photonic fabric.
- Multi-Year Guidance Transparency: Management is setting a sector precedent with detailed multi-year revenue and custom silicon ramp forecasts.
Performance Analysis
Marvell delivered record third quarter revenue, with data center now comprising 73% of total sales and growing 38% year-over-year, powered by robust AI and hyperscaler demand. Excluding the divested automotive Ethernet business, the go-forward business saw even higher growth rates, with communications and other end markets rebounding nearly 50% year-over-year. Non-GAAP gross margin expanded to 59.7%, up 30 basis points sequentially, as operating leverage from scale and product mix improvements flowed through the P&L.
Operating cash flow hit a record, supporting both aggressive buybacks and the funding of the Celestial AI acquisition without new debt. Management emphasized that the data center interconnect segment—roughly half of data center revenue—will continue to grow faster than cloud capex, while custom silicon is set for at least 20% growth next year and a potential doubling in fiscal 2028. The company expects sequential revenue growth every quarter next year, with a stronger second half driven by new product ramps and custom silicon transitions.
- Data Center Momentum: Core data center, including interconnect and custom, is now the dominant engine, reflecting Marvell’s strategic repositioning.
- Operating Leverage: Non-GAAP EPS grew 77% year-over-year, more than double the pace of revenue, highlighting cost discipline and margin expansion.
- Capital Allocation Shift: $1.35 billion was returned to shareholders via buybacks and dividends, enabled by strong cash generation and divestiture proceeds.
With the communications and other end markets stabilizing and inventory normalization complete, Marvell’s top-line is increasingly levered to AI infrastructure cycles and next-generation optical connectivity.
Executive Commentary
"This year, following the divestiture of our automotive Ethernet business, we are continuing to double down on data center with the acquisition of Celestial AI. This positions us to further capitalize on the massive opportunity in accelerated infrastructure."
Matt Murphy, Chairman and Chief Executive Officer
"Non-GAAP earnings per diluted share was $0.76, reflecting year-over-year growth of 77%, which is more than double the pace of revenue growth, demonstrating the significant operating leverage in our model."
Willem Minkes, Executive Vice President and Chief Financial Officer
Strategic Positioning
1. AI Data Center Focus and Portfolio Evolution
Marvell’s business model has been reshaped around AI-driven data center infrastructure, with the divestiture of automotive Ethernet and the acquisition of Celestial AI reinforcing this pivot. The company’s product suite now spans PAM DSPs, TIAs, custom ASICs, and emerging photonic fabrics, creating a “one-stop shop” for hyperscaler connectivity needs.
2. Optical Interconnect and Photonic Fabric Leadership
The acquisition of Celestial AI brings disruptive photonic fabric technology, enabling multi-rack, high-bandwidth optical links that outpace copper’s physical limits. The first generation PF chiplet delivers 16 terabits per second—10x today’s state-of-the-art—and is already designed into a major hyperscaler’s next-gen architecture. This platform is expected to generate a $500 million annualized run rate by Q4 fiscal 2028, doubling to $1 billion the following year.
3. Custom Silicon and XPU Attach Expansion
Custom ASICs and XPU-attached solutions are emerging as high-growth vectors, with more than 18 design wins and a pipeline of XPU and memory expansion chiplets. Marvell sees line of sight to over $2 billion in XPU attach revenue by fiscal 2029, with recent wins at tier one hyperscalers and strong demand visibility into next-gen node transitions (3nm and 2nm).
4. Capital Allocation and Balance Sheet Strength
Marvell is funding M&A and capital returns through robust operating cash flow and divestiture proceeds, maintaining a net debt to EBITDA ratio below 1x. The Celestial AI acquisition will be paid for with cash and stock, with no new leverage required, preserving balance sheet flexibility for future growth or buybacks.
5. Multi-Year Growth Visibility and Customer Engagement
Management’s willingness to provide multi-year revenue and growth guidance is underpinned by deep customer visibility and long-term hyperscaler buildout roadmaps. With purchase orders in hand for next year’s custom silicon ramps and detailed product transition planning, Marvell is setting a new standard for transparency in the sector.
Key Considerations
Marvell’s Q3 marks a structural inflection point, with AI data center infrastructure demand and the Celestial AI deal driving a new phase of growth and competitive positioning. The company’s execution across custom silicon, optical interconnect, and capital allocation will be the primary determinants of its ability to sustain sector-leading growth rates.
Key Considerations:
- AI and Optical Demand Outpacing Cloud Capex: Marvell’s interconnect and custom silicon businesses are growing faster than hyperscaler spending, reflecting strong AI adoption and architectural shifts.
- Celestial AI Integration and Execution: Realizing the $1 billion run rate target will require seamless integration, accelerated productization, and broadening customer adoption beyond the initial hyperscaler win.
- Custom Silicon Visibility and Ramp: Purchase orders for next-gen XPU programs provide confidence, but execution risk remains in multi-node transitions and high-volume ramps.
- Operating Leverage and Cost Discipline: Margin expansion is being driven by scale and mix, but continued investment in R&D and integration costs will pressure opex in the near term.
Risks
Key risks include potential delays in Celestial AI productization, execution challenges in multi-year custom silicon ramps, and hyperscaler spending volatility. The company’s heavy exposure to a concentrated set of customers and programs increases sensitivity to design win timing and competitive displacement. Regulatory review for the Celestial AI acquisition and integration complexity may also pose unforeseen challenges.
Forward Outlook
For Q4, Marvell guided to:
- Revenue of $2.2 billion at the midpoint
- Non-GAAP gross margin between 58.5% and 59.5%
- Non-GAAP EPS in the range of 74 to 84 cents
For full-year fiscal 2027, management expects:
- Data center revenue to grow more than 25% year over year
- Custom silicon up at least 20% with a stronger second half
- Communications and other end markets to grow 10%
Management highlighted:
- Sequential revenue growth every quarter next year, with a strong exit rate into fiscal 2028
- Celestial AI revenue to begin contributing meaningfully in the second half of fiscal 2028, targeting a $500 million run rate and doubling to $1 billion by Q4 fiscal 2029
Takeaways
Marvell’s Q3 results and forward guidance reinforce its position as a premier AI infrastructure enabler, with the Celestial AI acquisition and custom silicon momentum creating a visible path to outsized growth through the decade.
- AI Infrastructure Leadership: Marvell’s data center and optical portfolio is aligned with hyperscale buildout cycles, with new technologies set to expand share and profit pools.
- Execution Watchpoint: Integration of Celestial AI and high-volume custom ramps will be critical for sustaining multi-year growth and margin expansion.
- Visibility and Transparency: Marvell’s multi-year guidance and customer engagement provide a rare level of revenue predictability, but investors should monitor for any slippage in hyperscaler spending or design transitions.
Conclusion
Marvell enters fiscal 2027 with strong momentum, a robust AI-driven data center franchise, and a clear roadmap to leadership in next-generation optical interconnect. The Celestial AI acquisition, combined with disciplined capital allocation and deep customer partnerships, positions the company for sector-leading growth and operating leverage through the end of the decade.
Industry Read-Through
Marvell’s results and commentary signal an accelerating AI infrastructure cycle that is expanding the total addressable market for optical interconnect, custom silicon, and rack-scale connectivity. The company’s willingness to provide multi-year growth guidance and its visibility into hyperscaler buildouts raise the bar for transparency and planning across the semiconductor and infrastructure supply chain. Competitors and ecosystem partners should expect continued pricing and technology pressure in high-speed optics, while the rapid pivot to photonic fabrics and XPU attach solutions will reshape the competitive landscape for data center silicon and connectivity providers. The sector is entering a phase where execution on multi-node, multi-customer ramps will separate long-term winners from those exposed to legacy architectures or slower product cycles.