HSBC Global Investment Research has initiated coverage on Marvell Technology (MRVL.US) with a "Hold" rating and a target price of $85. The research team highlighted that the negative impact from the ASIC (Application-Specific Integrated Circuit) business would be offset by growth in the AI optics segment.

Led by analyst Frank Lee, the team noted that Marvell is emerging as a key player in the AI space, leveraging its ASIC and optical communication businesses. The analysts pointed to capital expenditures (Capex) by hyperscalers as a reliable proxy for ASIC demand. "Given the significant upward revision in hyperscalers' Capex guidance, we expect ASIC's share to rise from 2% in 2023 to 13% by 2027. While Marvell remains confident in its ASIC strategy, we remain cautious, believing that competitor Broadcom (AVGO.US) stands to benefit more due to its clearer ASIC product roadmap," the report stated.

Year-to-date, Marvell's stock has declined approximately 29%, while Broadcom's shares have surged about 47%. The analysts added, "We view Amazon (AMZN.US) as Marvell's largest ASIC customer, but Marvell's share in Amazon's current-generation Trainium 2/2.5 chips is limited, as these are primarily designed in-house by Amazon. For the next-gen Trainium-3, we anticipate further share loss for Marvell, as AI chips have already secured most orders."

Marvell's next major ASIC project is expected to come from Microsoft (MSFT.US), but the team forecasts a delay until at least 2027, citing insufficient CoWoS capacity availability for Marvell in 2026. HSBC estimates Marvell's ASIC revenue for fiscal 2027 at $2 billion (up 12% YoY), 10% below the consensus estimate of $2.3 billion (up 26% YoY).

"While ASIC is a key variable for the stock, Marvell's leadership in AI optics—driven by DSP chips—remains its primary revenue driver. We expect competition to intensify with Broadcom's rollout of 800G and 1.6T DSP solutions," the analysts noted. Despite heightened competition, HSBC projects Marvell's optical revenue for fiscal 2027 at $2.5 billion (up 38% YoY), 14% above the consensus estimate of $2.2 billion (up 20% YoY), citing stronger DSP growth from an expanded 800G total addressable market (TAM) and gradual 1.6T adoption.

Overall, HSBC estimates Marvell's total data center revenue for fiscal 2027 at $7.1 billion (up 18% YoY), aligning with market expectations and management's reiterated guidance, as well as HSBC's outlook for hyperscaler Capex growth.