Should You Buy Marvell Stock Because Its Operating Margin Keeps Widening

Marvell Technology (MRVL) lifted its revenue outlook for fiscal 2027 and fiscal 2028 in its late-August report. The stock, at about $206, is up more than 220% over the past twelve months and down about 32% over the past three months. The bear case is the gross margin, and management supplied the number. The counter sits one line further down, in an operating margin that has widened two years running.

Marvell Expects Its Gross Margin To Step Down, Then Hold, Through Fiscal 2028

For fiscal Q3 2027, the company guided non-GAAP gross margin as low as 57.5%. The CFO named the custom silicon ramp as the reason it steps down, and put the preliminary view for fiscal 2028 in the same range. So the part of Marvell accelerating hardest is also the part pushing the gross margin down.

Timing is the bear case's other half. The expanded agreement and warrant Marvell disclosed with a large hyperscaler in August add nothing to fiscal 2028, because management says revenue from the programs it covers through that year already sits inside the custom target, though management says that same agreement gives it greater confidence in the custom business from fiscal 2029 onward. If the fastest-growing products carry a thinner gross margin, each extra dollar of revenue arrives with less profit attached, and growth alone does not fix that.

The Company Keeps More Of Every Dollar Than It Did Two Years Ago

Below the gross line, the direction reverses. The operating margin has risen in each of the last two years, from -7.5% two years ago, to 6.0% a year ago, to 16.8% over the trailing twelve months. That is on $9.5 billion of revenue over the same twelve months, up 30.6%, so a small base is not flattering the ratio.

The mechanism is spending. Non-GAAP operating margin reached 36.6% in fiscal Q2 2027, up 180 basis points year over year, as non-GAAP operating expenses of $611 million grew far slower than the 37% revenue increase. A gross margin that holds its range while revenue grows and spending grows half as fast still leaves a wider operating margin.

Can Marvell Hold That Widening As Custom Silicon Scales?

Not automatically. The mix pressure on gross margin does not disappear because the operating margin rises. What the last two years show is that leverage below the gross line has outrun the mix. How long that lasts is the open question.

One detail narrows it. Custom is ramping hard, and it is probably still not the largest piece of the added guidance: management calls connectivity the probable largest driver of the $1.5 billion it added to the fiscal 2028 outlook, naming scale-up optics, switching and optical DSPs. Those are not the products management named as the drag on gross margin.

The case is narrow and testable. When fiscal Q3 2027 is reported, watch whether the operating margin climbs again with gross margin inside the guided range. If it does, three months of selling will have marked down a business whose profit line kept widening, even though the stock is still up more than 220% over twelve months. That question is worth asking across every stock that has sold off this hard.

Marvell Still Rides A Single AI Build-Out

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