Morgan Stanley raised its Marvell Technology price target after the chipmaker strengthened its long-term data-center growth outlook, but the bank's Equalweight rating points to a growing valuation problem. The firm lifted its target to $246 from $224, just about 2% above Marvell's $241.45 Thursday close, even as the company now expects calendar 2027 data-center growth of 60%, up from 50%.

Marvell supplies semiconductor infrastructure used in cloud and AI data centers, including custom compute silicon, high-speed networking and optical connectivity products. Its expanding exposure to hyperscaler AI spending has increasingly positioned the company as a picks-and-shovels beneficiary of the AI infrastructure boom.

Morgan Stanley said Marvell's latest quarter and outlook broadly matched previous commentary, despite elevated expectations following the company's recently announced relationship with Google. The bank noted that the customer had already been incorporated into Marvell's prior forecasts.

Instead, Morgan Stanley highlighted Marvell's growing emphasis on a broader range of "XPU attach" businesses, optical connectivity and scale-up opportunities. The strategy could offer greater visibility than attempting to compete directly with Nvidia for custom ASIC opportunities.

That long-term opportunity is becoming larger. Marvell reported record fiscal second-quarter revenue of $2.74 billion, up 37% year over year, while adjusted earnings reached $0.94 per share. Management also expects fiscal third-quarter revenue of about $3.15 billion, plus or minus 5%, with adjusted gross margin between 57.5% and 58.5%.

Still, shares fell sharply in premarket trading after the results as investors weighed the powerful AI growth story against valuation and a less favorable margin mix.

Investor Takeaway

Morgan Stanley's higher target but unchanged Equalweight rating captures Marvell's central tension: fundamentals are accelerating, but expectations already appear high. Investors should watch whether the company can deliver its new 60% data-center growth forecast while protecting gross margins as custom silicon scales. The next major catalyst is Marvell's Oct. 6 Investor Day, where management is expected to detail its longer-term AI infrastructure strategy and growth drivers.