Is There A Risk Hiding In Marvell Stock's Rapid Growth? Trefis Team Wed, October 7, 2026 at 3:34 PM EDT MRVL -1.04% AVGO +0.09% NVDA -0.60% AMD -0.33% QCOM -2.20% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Marvell Technology (MRVL) reported an adjusted gross margin of 58.9% for fiscal Q2 2027. This metric represents the share of sales the company retains after covering the cost of manufacturing its chips. Investors typically expect that share to expand during a market boom. Sales grew 37% from a year earlier, yet management anticipates a margin decline. So what would pull the margin down while demand is this strong?
Why Does Marvell Expect A Lower Gross Margin?
During its fiscal Q2 2027 earnings call, management cited product mix as the main cause for the expected margin decline. Marvell is selling custom chips at a faster rate than the rest of its portfolio.
Because a company's overall gross margin averages the profitability of everything it sells, rapid growth in lower-margin items can drag down the total average. This mathematical shift occurs even if the profitability of individual products remains unchanged. That appears to be what is happening with Marvell's custom chips, which management expects to ramp significantly in the second half of fiscal 2027.
These custom chips sit within Marvell's data center business, a division that brought in 79% of revenue in fiscal Q2 2027. This means the margin shift is developing at the core of the company rather than the periphery.
Marvell Expects A Small But Lasting Gross Margin Drop
Management forecast an adjusted gross margin of 57.5% to 58.5% for fiscal Q3 2027, compared to the 58.9% reported for fiscal Q2 on the same measure. That is 0.4 points lower at the top of the range and 1.4 points lower at the bottom. That represents a relatively mild contraction on a sequential basis.
The duration of this lower level deserves more attention than the initial drop. Management expects the margin to remain in this same range throughout fiscal Q4, with early indications suggesting fiscal 2028 will look similar. Investors are not dealing with a single soft quarter. Furthermore, management expects custom chip sales to more than double in fiscal 2028. At its October 6 Investor Day, management raised its fiscal 2028 revenue outlook to about $20 billion, from $18 billion in August. If custom chip sales more than double, they would still grow faster than the total, so custom chips should form a larger share of what Marvell sells.
Should Marvell Holders Worry About A Lower Gross Margin?
Valuation is the primary reason for mild concern. Marvell stock trades at 97.6 times earnings, compared to 21.5 for the S&P 500. Over the past twelve months, the stock returned 234%, vastly outpacing the 17.8% return for the index. A premium of that magnitude likely assumes rapid profit growth. Delivering that growth may become harder for Marvell with less gross profit on every sale.
The most compelling counterargument is absolute volume: Marvell is selling significantly more. Management recently raised its fiscal 2027 revenue outlook to roughly $12 billion, from about $11.5 billion a quarter earlier. The company also expects its adjusted operating margin to enter its long-term target range of 38% to 40% in fiscal Q4 2027. Because operating margin measures profit after running costs as a share of sales, hitting that target means Marvell would keep more of each sales dollar as operating profit than it does today, even with a lower gross margin.
Investors should monitor this metric without letting it dictate panic. The forecast drop is small, and Marvell's sales are growing quickly. However, a gross margin that falls further than management has indicated would alter that outlook. Specifically, watch the fiscal Q3 2027 report for an adjusted gross margin below 57.5%, the bottom of the range management forecast.
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