Life

Over the past two weeks, we visited Yellowstone and Glacier National Parks, where we saw an incredible variety of wildlife—including bears, bison, deer, and bighorn sheep. I highly recommend making the trip, especially during the summer, when these national parks are at their best. It is a wonderful opportunity to step away briefly from the noise of the markets and the relentless flood of AI-related information, return to nature, take a deep breath, and reset.

The people who work and live in these national parks may seem far removed from AI, yet in some ways they are also very close to it. At times, I find myself admiring their way of life. Market news has little impact on their daily lives and may not matter to them at all. What truly matters is whether we appreciate the grace God gives us each day—nature, people, animals, and everything around us.

I am still learning how to strike that balance myself: how to pursue new technologies and information while maintaining a calm mind, thinking for the long term, and making grounded decisions in the present.

Market: MRVL Offers More Compelling Upside Potential

MRVL Earnings Call

This quarter’s financial results and guidance both exceeded the company’s previous outlook. We believe Marvell’s partnership with Google and the ramp-up of its scale-up business could provide meaningful upside over the next year. The bear case centers on modest gross-margin pressure over the coming quarters. However, we expect continued operating-margin expansion to support a higher valuation.

Financial Performance

Revenue increased to $2.739 billion, up 37% year over year and 13% quarter over quarter, compared with the Q1 outlook of $2.7 billion for Q2. Non-GAAP EPS reached $0.94, with both metrics exceeding the midpoint of guidance.

The company expects Q3 revenue to rise 15% sequentially to $3.15 billion, representing year-over-year growth of more than 50%.

Key Technology and Business Drivers: Google and Optical Connectivity as the Primary Sources of Upside

Google TPU Partnership

Based on the disclosed figures, cumulative revenue could reach $120 billion over six years if all milestones are achieved, equivalent to approximately $18.5 billion annually. Compared with the company’s current annual revenue base of only $15–18 billion, this represents substantial upside. The most significant volume ramp is expected to begin in FY2029, corresponding to CY2028, and continue thereafter.

The partnership primarily involves attach silicon for Google’s TPU ecosystem, including CXL and DPU solutions. The contract covers a broad product portfolio spanning AI inference accelerators, storage controllers, custom NICs, memory-interface controllers, and near-memory computing solutions.

CXL Memory Expansion and Scale-Up Optics

High Potential to Exceed Current Ramp Expectations

Marvell has invested in CXL—or Compute Express Link—development for several years. This quarter, the company announced that it had begun receiving meaningful volume orders.

The key reason is that CXL has proven particularly well suited to memory expansion for AI inference workloads.

Marvell’s CXL memory-expansion chips are currently being deployed at significant scale by several U.S. hyperscalers. Combined with the PCIe Gen 6 and CXL 3.1 switching technologies acquired through XConn, Marvell can offer a complete end-to-end solution consisting of CXL switches, memory expanders, and retimers.

Operating Leverage Expansion

Potentially Misunderstood by the Market

The dilution in gross margin is indeed being driven by the strong ramp of lower-margin custom silicon revenue. However, the company also stated that operating expenses are growing at only half the rate of revenue. This should generate significant operating leverage and could bring the operating margin into its long-term target range of 38%–40% as early as Q4.

NVDA Earnings Call

This earnings call is well worth examining in depth. The key takeaway is that the circular financing cycle can continue—meaning the AI productivity flywheel remains intact. However, when industry leaders must rely on accelerating revenue growth rather than expanding gross margins to drive EPS, and operating margins can no longer improve, their valuation multiples will inevitably face pressure.

Financial Performance and Outlook

1Q27: Near-Term Guidance and Stable Gross Margin

In 1Q27, NVIDIA provided only one quarter of revenue guidance, projecting $91 billion for 2Q27. It also expected full-year gross margin to remain in the mid-to-high 70% range.

2Q27: Significant Pressure From Memory Costs

Faced with exceptionally high HBM and SOCAMM memory prices, NVIDIA lowered its 3Q27 gross-margin guidance to 74% and projected that gross margin would decline to a cyclical low of 71%–72% in 4Q27.

A “Floor” for FY2028 Revenue Guidance

To offset the decline in gross margin, management unexpectedly introduced a strong baseline forecast in 2Q27, calling for FY2028 revenue growth of 70%. The company also emphasized that, absent supply-chain constraints, underlying customer demand would imply a doubling of revenue year over year.

Products and Supply Chain: From Wafer and Packaging Shortages to Physical-Infrastructure Constraints

1Q27: Focus on Architecture and an Entirely New CPU TAM

The primary focus was the rapid adoption of Blackwell systems, including GB300 and NVL72. NVIDIA also highlighted the Vera CPU, which is designed to orchestrate agentic-AI workloads. The company expects Vera to open a new $200 billion total addressable market and guided to $20 billion in CPU revenue for the year.

2Q27: New Architecture Ramps as Physical Bottlenecks Intensify

Vera Rubin officially entered volume production and began shipping in August 2026. It is expected to rapidly grow to approximately 20% of data-center revenue in 3Q27.

We believe NVIDIA’s revenue opportunity per gigawatt of data-center capacity has increased substantially—from $18 billion for Hopper and $25 billion for Blackwell to more than $40 billion for Vera Rubin.

Management also noted that supply-chain bottlenecks have expanded beyond wafers and advanced packaging to physical infrastructure, including electricity, land, server enclosures, liquid cooling, and rack assembly. These constraints are expected to persist through at least the end of FY2028.

Business Model and Ecosystem: The Rise of ACIE and NVIDIA’s Growing Role in Circular Financing

The Rise of Non-Hyperscaler Customers, or ACIE

In 1Q27, NVIDIA broke out its data-center submarkets, grouping AI cloud providers, industrial customers, enterprises, and sovereign customers into the ACIE segment. By 2Q27, ACIE revenue had surged to $40 billion, up 25% sequentially, and is expected to eventually represent approximately half of NVIDIA’s data-center business.

“Hyperscalers will remain a major growth driver, but non-hyperscaler growth—our AIC and E segment, spanning sovereign and regional neoclouds, enterprise edge, and air-gapped data centers—will represent roughly half of our data-center business.”

Launching a Large-Scale Third-Party Financing Platform

Frontier AI laboratories such as OpenAI and Anthropic have enormous infrastructure demand, but their growth is constrained by their balance sheets and financing capacity.

In 2Q27, NVIDIA announced that, in addition to investing nearly $50 billion directly in frontier laboratories, it had partnered with six major financial institutions—Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR—to establish a financing platform capable of raising more than $500 billion in third-party capital. The platform is designed to help customers secure long-term, low-cost financing for infrastructure projects.

Introducing Credit Guarantees and Revenue-Sharing Arrangements

To support sovereign-cloud and regional neocloud operators, NVIDIA will provide take-or-pay commitments covering a portion of a facility’s capacity. These minimum-revenue guarantees give lenders greater confidence in underwriting the projects.

In return, NVIDIA can share financial risk while receiving a portion of the neocloud operator’s rental revenue. This adds highly recurring, usage-linked income on top of the company’s one-time hardware sales.

“NVIDIA provides a take-or-pay commitment on a portion of the facility’s capacity—a minimum revenue guarantee that gives lenders the confidence to underwrite the project. In exchange, we share in a portion of the neocloud’s revenue earned above that floor. We get paid twice: once on the hardware sale and again through our share of rental revenue.”

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MRVL Financial Forecast: …

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