Marvell will acquire chip startup Celestial AI for $3.25 billion, optimistic about growth next year
SAN FRANCISCO, Dec 2 (Reuters) - Chipmaker Marvell Technology (MRVL.O), opens new tab announced on Tuesday its plan to acquire semiconductor startup Celestial AI in a transaction valued at $3.25 billion, alongside a positive outlook for the upcoming fiscal year.
Marvell's stock saw a roughly 13% rise in after-hours trading.
The surge in generative AI has accelerated the chipmakers' innovation drive as they compete to craft ultra-fast, energy-efficient technology for sophisticated data centers. Both Marvell and competitor Broadcom are at the forefront, creating custom chips tailored for cloud-computing companies' data-center needs, evolving this into a significant line of business.
Marvell anticipates total revenue of approximately $10 billion for the forthcoming fiscal year, highlighted by a 25% increase in data center revenue, according to CEO Matt Murphy. The company does not forecast significant quarterly fluctuations in custom chip revenue next year.
DEAL SECURES MARVELL PHOTONICS TECHNOLOGY
Marvell projects a 20% growth in its custom chip business revenue for the next year, CEO Matt Murphy shared during a conference call. The Santa Clara, California-based firm cooperates with Amazon and Microsoft in developing proprietary AI chips, as noted by JP Morgan analyst Harlan Sur.
The agreement with Celestial AI allows Marvell to leverage the startup's expertise in photonics, which employs light instead of electrical signals to interlink AI chips and memory chips. This domain sees competition from Broadcom and the world’s leading company, Nvidia (NVDA.O)
The Celestial deal positions Marvell strategically in the photonics technology landscape, enhancing its competitive edge against major rivals.
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Celestial tech will be integrated into Marvell's upcoming photonics infrastructure products, opening access to a $10 billion market, Murphy informed Reuters.
“Upon completion, Marvell will emerge as a leader in silicon photonics,” he stated.
Major cloud computing firms are expected to adopt photonics technology by 2027 or 2028 for substantial applications, Murphy noted. Eventually, widespread use is anticipated.
As part of the agreement, Celestial AI will obtain $1 billion in cash and 27.2 million shares of Marvell common stock, valued at $2.25 billion.
Marvell predicts significant revenue from Celestial AI starting in the second half of fiscal 2028, with a $500 million annualized run rate by the fourth quarter of fiscal 2028, and doubling to $1 billion by the fourth quarter of fiscal 2029.
The transaction is set to finalize in the first quarter of calendar year 2026.
AMAZON CONNECTIONS
In relation to the Celestial deal, Marvell granted Amazon a warrant (AMZN.O), opens new tab to acquire its shares. This arrangement enables Amazon to purchase Marvell stock based on its acquisition of photonic fabric products until the end of 2030.
Amazon can buy up to $90 million of Marvell stock, equating to approximately 1 million shares, with an exercise price near $87.
Marvell forecasted fourth-quarter revenue around $2.2 billion, with a 5% margin of error, aligning with analysts' projections of $2.18 billion, as compiled by LSEG.
Third-quarter revenue, ending November 1, increased by 36.8% to $2.07 billion, meeting analysts' predictions.
Before Tuesday's after-hours tra
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Marvell experienced a stock decline of over 15% this year. This drop is due to increasing competition in custom AI chips and networking markets, coupled with Wall Street's growing concerns about a potential AI bubble.
