Record Revenue $2.075B (+37% YoY), Celestial AI Acquisition for Photonic Fabric Scale-Up Announced, FY27 Revenue Outlook Raised to $10B (Data Center +25%), FY28 Data Center +40%, AEC + Retimer Revenue More Than Doubles, $1B ASR Executed — Upgrading to Outperform

Coverage Update from Q2

We maintained Hold at the August Q2 print at ~$74 with $65-$90 range, citing Q3 custom lumpiness as the key open validation question. The Q3 print delivered: (1) data center revenue actually grew sequentially (+2% vs "flat" guide), (2) Q4 acceleration explicitly framed at +20% YoY data center, (3) FY27 outlook formalized at $10B / data center +25%, (4) the Celestial AI acquisition added a transformational scale-up bet. Each of these supports the multi-year framework that AI Day '25 established. We upgrade to Outperform because the operational validation has happened + the long-term framework has expanded substantially.

Results vs. Consensus

Q3 Scorecard

FY27 Outlook Formalization

Quality-of-Beat Callout

Revenue / Margin / Cash Assessment

Revenue +37% YoY to $2.075B; ex-auto Ethernet (divested in Q3) implied +41%. Sequential growth +3% headline / +6% organic. Data center revenue beat the "flat" Q3 guide as electro-optics + storage + switch all delivered double-digit sequential growth — partially offset (as guided) by custom decline. Communications + other +8% QoQ, +34% YoY (almost +50% YoY ex-auto Ethernet) — recovery accelerating.

Non-GAAP gross margin 59.7% (+30bp QoQ) — modest expansion as mix shifted toward higher-margin businesses (less custom; more electro-optics, switching, storage). Non-GAAP op margin 36.3% (+150bp QoQ; +870bp YoY). Operating leverage continuing to compound.

Operating cash flow $582M — record. Capital allocation: $1B ASR + $300M ongoing buyback + $51M dividend = $1.35B in Q3 alone. Inventory $1.01B (down $37M sequentially as Q2 supply build worked through). Net debt-EBITDA 0.58x (improving). Cash position $2.7B (vs $1.2B Q2) — auto Ethernet proceeds ($2.5B) net of capital return.

The Celestial AI Acquisition — Strategic Detail

The Celestial AI announcement was the single most significant strategic disclosure of the quarter. Photonic fabric (PF) platform purpose-built for scale-up interconnect — a market expected to approach $10B+ by 2030 between switches + interconnect dollar content. Key facts:

What Celestial Does

• Photonic fabric chiplet (PF chiplet): Integrates drivers, TIAs, equalizers, SerDes, microcontrollers, modulators, photodiodes, and waveguides into a compact form factor.
• 16T bandwidth per chiplet: ~10x today's 1.6T scale-out ports.
• 2x+ power efficiency vs copper interconnects at significantly higher bandwidth and longer reach.
• Nanosecond-class latency: Suitable for tight XPU-to-XPU coupling.
• Excellent thermal stability: Reliable operation in multi-kW XPU environments — enables 3D co-packaging vertically with XPUs and switches (vs adjacent CPO that connects at die edge).
• Frees up die edge beachfront: Beachfront can be repurposed for HBM or additional package bandwidth.

The Lead Customer Win

"Celestial AI has already secured a major design win with one of the world's largest hyperscalers who plans to use Celestial AI's PF chiplets in its next-generation scale-up architecture. These PF chiplets will be co-packaged into both the hyperscalers custom XPUs and the scale of switches providing connectivity. This is expected to be the industry's first large-scale commercial deployment of optical interconnects for scale-up connectivity."
— Matt Murphy, CEO

The lead customer is presumed to be AWS — supported by the Form 8-K filing that updated Marvell's existing AWS warrant agreement to include 1M additional shares tied to photonic fabric. The "swim lane" addition signals a major commercial commitment from AWS.

Revenue Trajectory + Deal Mechanics

• Expected to close Q1 FY27 (early CY2026); operates as separate independent company through regulatory review
• Funded through stock + cash on hand; no incremental debt
• $2B earnout structure through end of FY29 — aggressive incentive alignment
• Meaningful revenue contribution begins H2 FY28
• Q4 FY28 run rate: $500M annualized
• Q4 FY29 run rate: $1B annualized
• OpEx contribution: $50M annual post-close

Strategic Rationale

"As we first evaluated Celestial AI, it reminded us of our early look at Inphi and the products we saw in their PAM technology to transform the scale-out interconnect market. We see even greater potential for Celestial AI's photonic fabric to transform the scale up interconnect market. … This positions us to further capitalize on the massive opportunity in accelerated infrastructure."
— Matt Murphy, CEO

The Inphi parallel is the key analytical anchor. Inphi was acquired in 2021 for $10B (~$200/share) and is now a $3-4B+ revenue business at meaningfully higher gross margins. Celestial — at a fraction of that price (terms not disclosed but estimated $5-7B based on stock + cash + earnout) — could follow a similar arc as scale-up CPO ramps through 2027-2030.

Assessment: The Celestial acquisition is the kind of strategic acquisition that materially changes Marvell's long-term value proposition. The combination with Marvell's existing silicon photonics team (originally from Inphi) creates the deepest in-house photonics capability in the industry. The lead AWS engagement de-risks early revenue. The $500M → $1B run-rate trajectory is conservative — Murphy noted broad customer interest beyond the lead. We add Celestial as the fourth growth pillar (custom + electro-optics + comms recovery + Celestial scale-up).

Segment / Product Detail

Data Center — $1.52B (+38% YoY) — Beat the Lumpy Q3 Bar

Optical Interconnect — Double-Digit Sequential Growth in Q3

800G demand robust; 1.6T entered production in H2 FY26 with strong customer demand. 1.6T life cycle has long runway. 400 gig per lane demonstrated at OFC — positions for 3.2T (CY2028 production on 2nm). Coherent light DSPs for 2-20km campus DCI shipping next year. Multiple LPO sockets secured (Marvell leads emerging LPO category).

AEC + Retimer — Inflection Point

"We have secured design wins with significant share positions at 2 Tier-1 U.S. hyperscalers, along with multiple wins at emerging hyperscalers. We are seeing strong demand for our AEC DSPs, and we expect our share to continue to grow as PAM-based 100 and 200-gig technology becomes dominant. Our PCIe Gen6 retimers are also gaining broad traction. We are currently engaged with more than 30 customers and partners, including hyperscalers, cable partners and system OEMs and ODMs. We already designed in more than 10 sockets, and we expect to enter production in the second half of next year with full revenue contribution in fiscal 2028. We expect our AEC and retimer revenue in aggregate to more than double from this year to next year."
— Matt Murphy, CEO

Assessment: AEC + retimer combined revenue base ~$200M FY26 more than doubling to ~$400-500M+ FY27. The PCIe Gen 6 retimer engagement with 30+ customers signals broad adoption. This is a new growth vector that materially adds to FY27 + FY28 revenue trajectory.

Data Center Switching — >$300M FY26, >$500M FY27

Switch revenue exceeded $300M FY26 (entirely scale-out). 12.8T continuing strong volume (customer roadmaps rely on it for years more). 51.2T ramping. 100T sampling H1 FY27. The "now expecting >$500M next fiscal year" raise from prior $500M is the framework adjustment.

Custom — Q3 Decline as Guided; Q4 Rebound, +20%+ FY27

Custom declined in Q3 as guided (lumpiness from Q2 builds). Q4 rebound driven by next-gen XPU at lead customer ramping. "We have purchase orders for the entirety of next fiscal year's current forecast for this next-generation program. Our revenue forecast for this program remained consistent with our prior expectations." FY27 custom +20%+ YoY.

XPU Attach — >$2B FY29 Line of Sight

Marvell has >15 XPU attach wins. Two highlighted categories:

• Custom NICs: Multiple hyperscaler wins. Customers planning to attach NICs to custom accelerators + broader AI server fleets (1M+ units annually at large hyperscalers).
• CXL memory expansion: 5 unique sockets at 2 Tier-1 US hyperscalers + 1 more deep engagement. First custom CXL already shipping in Q1 FY26. Near-memory compute socket entering production a year from now. Remaining CXL production CY2027.

Line of sight to >$2B FY29 just from NIC + CXL.

Communications + Other — $557M (+34% YoY)

The new consolidated end market (combining enterprise networking + carrier infrastructure + consumer + auto/industrial). Q3 ex-auto Ethernet: +20% sequential, +50% YoY. Q4 outlook: +LSD sequential, +25% YoY (~+40% ex-auto). Enterprise networking annualized run rate approaching $1B in Q4 — complete normalization of customer inventory.

Long-term framework: $2B+ combined enterprise + carrier (vs $900M trough Q1 FY25); $300M consumer; $100M industrial post-divestiture.

The Multi-Year Outlook Framework

Murphy and Meintjes formalized the FY27 outlook for the first time on this call, providing detailed segmentation:

FY28 Framework

• Custom: doubles year-over-year from FY27 ~$1.8B to ~$3.6B
• Interconnect: significantly above CapEx growth (assume ~+20% CapEx → Marvell >+25%)
• Storage/switch/other: +10% YoY
• Total data center: ~+40% YoY (vs +25% FY27)
• Comms + other: roughly stable GDP growth
• Total revenue FY28: ~$13-14B
• Celestial begins contributing meaningfully in H2 FY28; Q4 FY28 $500M run rate

Assessment: The framework formalization is the critical analytical anchor. The CFO-endorsed multi-year outlook gives investors confidence to underwrite multi-year EPS growth at 35-45% CAGR through FY28. We rebase our FY27 model to ~$10B revenue, ~$3.80-$4.20 EPS. FY28 ~$13-15B revenue, ~$5-$6 EPS.

Key Topics & Management Commentary

1. Celestial AI Acquisition — Photonic Fabric Scale-Up Platform

The acquisition added a fourth growth pillar at exactly the right strategic moment. Marvell already had the in-house silicon photonics team (originally Inphi) and now adds the Celestial design team + lead AWS engagement + revenue trajectory commitment. Murphy framed: "We see even greater potential for Celestial AI's photonic fabric to transform the scale up interconnect market."

Assessment: The strategic logic is impeccable. Scale-up interconnect is the next AI architecture bottleneck (after scale-out). Marvell's combined Inphi + Celestial team is the deepest photonics capability in the industry. The lead AWS engagement de-risks the first ramp. Multi-year $1B+ revenue contribution by FY29.

2. FY27 Outlook Formalized at $10B (+25%)

"We now expect Marvell's data center revenue to grow year-over-year by more than 25% next fiscal year. Please note that this forecast does not include any revenue from the pending acquisition of Celestial AI. … Putting it all together, we are looking forward to a strong fiscal 2027."
— Matt Murphy, CEO

Outlook raised from September's $9.5B (indexed to 18% CapEx) to formal $10B as CapEx now expected 30%+. The "purchase orders for entirety of next fiscal year's current forecast for next-gen XPU program" is the operational evidence.

3. FY28 Data Center +40% Framing — Above FY27

Murphy explicitly framed FY28 data center growth accelerating above FY27's +25%, to ~+40%. The drivers: custom doubles year-over-year (new Tier-1 XPU + XPU attach + lead program continuation); interconnect significantly above CapEx; switching ramp; scale-up emerges.

Assessment: The +40% FY28 framing is the first multi-year framing of an accelerating growth slope. Combined with Celestial AI starting to contribute in H2 FY28, this is the multi-year compounding thesis investors want.

4. AEC + Retimer Inflection

AEC design wins at 3 Tier-1 US hyperscalers (up from 2 Q2). PCIe Gen 6 retimers engaged with 30+ customers; 10+ socket wins. Combined revenue more than doubles FY26 → FY27.

5. XPU Attach — $2B+ FY29 Line of Sight

15+ XPU attach wins. NIC + CXL combined $2B+ FY29. CXL ramping with multiple production starts CY2026-CY2027.

6. Switch Business — >$500M FY27 (Raised from $500M Prior)

Q4 switch revenue continuing to grow. 12.8T workhorse; 51.2T ramping. 100T sampling H1 FY27. Now expecting >$500M FY27 — up from the $500M last quarter framing.

7. Custom Lumpiness — Q4 Rebound Confirmed

Q3 declined as guided. Q4 strong rebound from next-gen XPU lead-customer ramp + XPU attach + initial CXL.

8. Capital Allocation — $1B ASR Aggressive Deployment

$1B accelerated share repurchase program executed during Q3. Plus $300M ongoing + $51M dividend. Cash position remains very strong at $2.7B.

9. AWS Warrant Agreement Extension — Photonic Fabric Swim Lane

"We did file Form 8-K talking about really an extension, if you think about it to the warrant agreement we have, which is effectively adding a new swim lane. … if you think about it was only 1 year ago that we announced with AWS a warrant and strategic arrangement with them. Back then, a year ago, it was really bucketed between AI, custom products and then networking products. And so think of this as just adding another swim lane of photonic fabric products to the mix."
— Matt Murphy, CEO

Assessment: Quietly significant. The expansion of the AWS warrant agreement to include photonic fabric is essentially AWS's commercial commitment to the Celestial roadmap. This is the strongest possible vote of confidence in the strategic acquisition.

10. Scale-Up Switching — UALink 115T/57T Sampling H2 FY27

UALink-based scale-up switches with PCIe ecosystem heritage + Ethernet IP. 115T (high radix) and 57T solutions sampling H2 FY27; volume production FY28. Marvell investing heavily.

Analyst Q&A

FY27 $10B + Long-term targets

Q: "Matt, I appreciate all the details you gave about how to think about next year. If I run through those numbers, basically, it sounds like you're implying somewhere around $10 billion in revenue for next year. So I guess, first of all, is that in the right ballpark? And then back in June, you gave a longer-term target for fiscal '29 for your business, especially on the AI side of things. How does what you're looking for next year gets you aligned to those long-term targets?"
— Ross Seymore, Deutsche Bank

A: "You're absolutely in the ballpark when you add up the numbers I gave you on $10 billion for next year. … this is just based on the Marvell organic plan, no M&A contribution. … on custom — we quadrupled that business from calendar '23 to '24, we doubled it from FY24 to FY25, we're saying it's going to be up about 20% this next year. But then when I look at the year after with all this goodness from XPU attach plus a new meaningful XPU socket ramping and the other programs continuing, we see the custom business … in fiscal '28 doubling off of '27. … And then for storage switch and the other part of data center just assume 10% growth in fiscal '28 over '27. … you come up with a number, bottoms up, which looks more like 40% growth in data center in fiscal '28. … kind of a long answer, but maybe what's been on a lot of investors' mind is how do you get from where we are to where we're going."
— Matt Murphy, CEO

3nm follow-on + 2nm pipeline

Q: "Today, Matt, your lead AI customer announced their next-generation 3 nanometer AI XPU product. And I think you just said you have secured purchase orders for this program for the entirety of next year. But your lead customer also preannounced their next-generation 2 nanometer XPU product today as well, which we believe you're also involved with. … Can you just give us an update on your sub 3 nanometer design win pipeline does include both XPU, XPU attach programs?"
— Harlan Sur, JPMorgan

A: "Just in the spirit of customer confidentiality and details, I can't go into too much. But what I would say, which is incorporated into our numbers is that our product transition from where we are today with our lead XPU customer to the next one is baked into all the numbers I gave you, and yes, I got the backlog and I got the orders and we got great visibility there. On the 2 nanometer, very exciting. I mean there's a number of programs that we're working on in this area, and that's going to be a workhorse process technology for us. … nothing really new to report there other than just heads-down execution and do see strong product ramps coming over this time period I gave you, especially in the fiscal '28 where you'll start seeing some of the 2 nanometer products ramp."
— Matt Murphy, CEO

Celestial AI revenue targets

Q: "I had a question on Celestial AI, Matt. So when you gave those $500 million and $1 billion target, would that be for the PF Link products only? Or would that also include some of the potential businesses with memory?"
— Tore Svanberg, Stifel

A: "The revenue targets and also the earnout that we're all going to drive for is all based on Celestial AI in totality. Now the reality is from a lead perspective, the PF chiplet is sort of what's going to go first. But everything is on the table, and there's just tremendous activity that, that team has driven, punching way above the weight in the industry in terms of the engagements they have. So those are all in numbers but clearly going to be driven more from the PF chiplet side in terms of the revenue build in end of fiscal '28 and then the end of fiscal '29."
— Matt Murphy, CEO

Celestial customer breadth

Q: "With that revenue ramp that you're expecting at the end fiscal '28, beginning of fiscal '29, can you talk about the breadth of that? And obviously, I'm sure you're not willing to name the customers right now. But is it a fairly narrow customer base, what's the — and going over time, how diversified is that revenue stream?"
— Chris Caso, Wolfe Research

A: "Engagement is certainly broad but remember, we're — there's a bold effort across the industry to really bring this product into volume stable production, and it's going to take real big companies and a few of them to do that. … as I said on the call, we have one Tier 1 hyperscaler that's — we're engaged with on this that I think is a great partner and a great teaching customer and a great customer to collaborate with to really go make this happen. … just as a reminder, we have an incredibly strong internal silicon photonics organization. I mean this team that we got from Inphi pioneered this technology."
— Matt Murphy, CEO

Custom FY27 confidence + visibility multi-year

Q: "You specifically mentioned at least 20% growth for next year. Seems like you've got a lot of good things happening, a lot of good stuff ramping. … But maybe you could give us a sense of what — if everything worked out right for you, what could be a normalized 2027 FY growth rate for custom? And then the second question was you gave us a lot of color all the way to FY 2028. … And this is kind of not the norm on Wall Street, most companies go out a quarter, as you well know. … what is your comfort level? And what is the visibility on some of this long-term revenue materializing that you're talking about?"
— Harsh Kumar, Piper Sandler

A: "You should definitely model the 20%, and I think that's — that is a good number. That's a good safe base case number. And remember, it's a handful of programs today. So I think I would just go for that now. Clearly, we're going to be ready if people want to do more, but I am also mindful of some of the history on this custom business where either people got ahead of themselves or there's a lot of noise in the system and it's just — look, we've got strong backlog, we got that covered. … on the sort of guide quarter at a time, that's definitely been our MO historically. I think given the multiyear cycles we're looking at now in the AI infrastructure build … it's incumbent on me to paint the picture for folks and share what I see as kind of base case assumptions."
— Matt Murphy, CEO

AWS warrant + Celestial photonic fabric swim lane

Q: "I want to ask you, Matt, I know it's always tough to talk about customers, but you did file an 8-K and it says you graded Amazon a warrant for 1 million shares to buy photonic fabric. So I guess, one, very simply, is that your lead customer? And if you can maybe talk about that expanding relationship."
— Blayne Curtis, Jefferies

A: "Great job checking out the EDGAR website, Blayne, you're always one step ahead. Yes, I think it's great. So first, we did file Form 8-K talking about really an extension, if you think about it to the warrant agreement we have, which is effectively adding a new swim lane. … if you can believe it was only 1 year ago that we announced with AWS a warrant and strategic arrangement with them. Back then, a year ago, it was really bucketed between AI, custom products and then networking products. And so think of this as just adding another swim lane of photonic fabric products to the mix. … we got the warrant agreement, we got an aggressive earnout that the team is driving, which is a $2 billion number, by the way, through the end of fiscal '29."
— Matt Murphy, CEO

Optics correlation to CapEx vs AI accelerators

Q: "I had 2 kind of questions on the data center, one on optics and one on custom. So on optics, why correlated to cloud CapEx? Why not do growth of AI accelerators, which is expected to be much faster than the 30%? And then on the custom side, you mentioned 20% as the baseline growth. Is that because the second customer is supposed to come on board? Or is it because you will grow with that first customer?"
— Vivek Arya, Bank of America

A: "On your first question … just the rationale was just to give just a broad proxy to the investment community about how to think about our business of sort of a very common metric, which is CapEx. I agree with you. The optics business is fundamentally driven by AI and AI acceleration. And that's why it's been growing so far above CapEx each year. … And then on the growth next year, yes, that's all still driven by — the way to think about it is mostly our current business today. So there's a product transition with our lead customer from one generation to another in there. There's some XPU attach that's kicking in, in the second half that's going to lead to the '28 and '29 revenues I was talking about. But the next bigger XPU customer we have, not much of that really you should count on for next year."
— Matt Murphy, CEO

Rack-scale solutions vs systems

Q: "So I think your main competitor in ASIC has moved to providing racks, not just silicon. And then with this acquisition and kind of given the increasing complexity we're seeing out there, might you be moving to systems and then perhaps even rack-level solutions as well?"
— Christopher Rolland, Susquehanna

A: "We are very much looking at this as a rack-level solution in totality and that is all the various flavors of optical interconnect. … the one-stop shop, right, from AECs, traditional DSPs, retimers, LPOs, photonic fabrics and then scale up and scale out switching and XPU attach sockets and circuits to make all this work. … we absolutely have a rack scale vision, and this is where Celestial AI really fits in. But we don't have any system-level revenues comprehended in anything I've talked to you about over the next 2 years. But certainly, from a strategic standpoint, it's imperative, right, that we go to market in a very comprehensive way."
— Matt Murphy, CEO

What They're Not Saying

• Specific Celestial purchase price. Stock + cash + earnout combination not fully detailed.
• Lead customer for Celestial not named. But AWS warrant 8-K expansion strongly implies.
• FY28 specific revenue dollar guide. Framework provided but no dollar guide.
• Gross margin trajectory beyond FY27. Margin dynamics with Celestial inclusion not detailed.
• 2nm specifics on production timing. "FY28 ramps" framing but no customer or program named.
• Specific custom customer count expansion. Framework references hyperscalers + emerging hyperscalers but no specific incremental count.

Market Reaction

• Pre-print (Dec 1 close): ~$82. Stock had rallied from ~$74 in late August on positive sell-side commentary + expectations of strong Q3 data center execution.
• Day-of (Dec 2): Print + Celestial announcement landed after-hours. Initial reaction +18% on combination of FY27 outlook ($10B) + Celestial acquisition + Q3 beat + Q4 acceleration. Sustained through after-hours.
• Day-after (Dec 3): Stock closed ~$98 (+19%). Volume ~50M shares (~3x 30-day average). Major flow event.
• Peers (Dec 3): AVGO +2%, NVDA +1%, AMD +0.5%. MRVL outperformed materially.
• Sell-side flow: Multiple upgrades from Hold to Buy. PT raises into $115–$150 range. Bull cases now formalized around (a) multi-year framework, (b) Celestial transformational optionality, (c) AEC + retimer + XPU attach diversification. Bear cases mostly retired.

Interpretive read: The +19% session reaction is the largest single-day move in 12+ months and reflects the magnitude of the framework expansion. Stock at $98 is well above our prior $90 fair value range high, validating the upgrade thesis. The risk-reward at $98 with FY28 $13-15B revenue trajectory + Celestial optionality + $5+ FY29 EPS visibility supports continued upside.

Street Perspective

Debate 1: Is the Celestial acquisition transformational or modest?

Bull view: The Inphi parallel — same management team valuation rigor, same first-mover photonics positioning, same lead-hyperscaler engagement model. If Celestial follows Inphi's arc, the asset is worth $20B+ by 2030. The $500M Q4 FY28 + $1B Q4 FY29 trajectory is conservative — broad customer interest beyond the lead suggests upside. The strategic fit with Marvell's existing photonics team is unique.

Bear view: Scale-up CPO adoption is highly uncertain. Many photonics technologies have promised inflection and underdelivered. The lead customer engagement is real but timing risk is meaningful. The acquisition adds $50M annual OpEx that's dilutive until H2 FY28.

Our take: The Celestial acquisition is genuinely strategic — the combination with existing Inphi-legacy photonics team is unique. The Inphi parallel + lead AWS engagement + $2B earnout incentive alignment all support the bull case. We treat Celestial as adding ~$10-15 of equity value per share on a 3-5-year basis.

Debate 2: Is the FY27 $10B framework credible?

Bull view: CFO-endorsed framework with detailed segmentation. CapEx growth has expanded materially. Multi-customer custom diversification visible. AEC + retimer + XPU attach all incremental. Communications recovery accelerating. The path is detailed and operationally grounded.

Bear view: Multiple moving pieces — execution risk on each. Custom doubling FY27→FY28 requires new Tier-1 customer ramp + XPU attach scaling + lead-program continued growth — three concurrent execution risks.

Our take: The framework is credible because the building blocks are visible (POs covering lead-customer FY27; multi-quarter custom design-win progression; AEC/retimer wins). FY28 $13-15B is achievable if execution holds.

Debate 3: Is the multiple appropriate at ~25x FY27E EPS?

Bull view: At $98 (~25x FY27E EPS of ~$3.90), Marvell still trades at a discount to AVGO (~33x). With FY28 EPS visibility at $5-6 and Celestial-driven long-term optionality, the multiple should re-rate toward AVGO-style 28-32x as visibility crystallizes. Path to $130-150 over 12-18 months.

Bear view: The post-print rally has compressed the risk-reward. ~25x is no longer cheap. Execution risk through FY27 + FY28 is real; any slippage triggers compression.

Our take: The risk-reward is balanced but skewed positive given the multi-year framework. We hold Outperform with $130 12-month price target.

Model Implications & Thesis Scorecard

Model Update

• FY26 estimates: Revenue $8.0-8.2B (+40% YoY) — unchanged
• FY27 estimates: Revenue $10B (+25% YoY); non-GAAP EPS $3.80-4.20; non-GAAP op margin ~37%
• FY28 estimates: Revenue $13-15B; non-GAAP EPS $5-6; non-GAAP op margin ~38%
• FY29 estimates: Revenue $17-20B; non-GAAP EPS $6.50-8.00; Celestial contribution accelerating
• Long-term framework: $25B+ revenue + ~40% op margin + $8-10 EPS by FY30

Thesis Scorecard

Rating & Action

Upgrading to Outperform from Hold. The Q3 print + Celestial AI acquisition combination delivers the multi-year framework validation we needed at the Q2 print to upgrade. Three factors drive the upgrade:

1. The Q3 custom lumpiness debate is resolved. Data center grew +2% QoQ vs "flat" guide; Q4 acceleration explicitly framed. The operational case is validated.
2. FY27 outlook is formalized at $10B with detailed segmentation. The CFO-endorsed multi-year framework gives investors confidence to underwrite EPS compounding at 35-45% through FY28.
3. Celestial AI adds a fourth growth pillar with transformational long-term optionality. The strategic fit + lead AWS engagement + revenue trajectory ($500M Q4 FY28 → $1B Q4 FY29) is meaningful.

Fair value range raised to $95–$130 (from $65-$90). Stock at ~$98 sits at the lower end of our new range. The upside to $130+ over 12-18 months is supported by (a) FY28 EPS visibility ~$5-6, (b) Celestial contribution layering in H2 FY28, (c) multiple expansion as visibility crystallizes.

Key watch items into Q4 (FY26 close + March FY27 print):

• Q4 print — does Q4 custom rebound + total acceleration align with framework?
• FY27 specific quarterly guidance — how front-loaded vs back-loaded?
• Celestial AI deal close (Q1 FY27) — timeline confirmation.
• 2nm custom design-win progression.
• Scale-up switch sampling milestones.
• AEC + retimer revenue ramp validation.
• FY28 details — formalization timing.
• Capital allocation — additional M&A activity.