Marvell's $115bn bet on light leaves investors cold
Marvell Technology has made one of the largest chip deals ever, and its shareholders did not like it.
The US chip designer agreed on Monday to buy Lumentum Holdings, which makes optical components for data centres, in an all-stock deal worth $115bn. Lumentum shareholders will receive 4.5 Marvell shares for each share they own. The deal is expected to close in the first half of 2028.
Marvell shares fell nearly 13 per cent on the day and Lumentum dropped more than 18 per cent, Business Insider reported. Marvell says the deal will make it a "category leader in AI connectivity". When the buyer pays in stock, a fall in its own share price makes the deal worth less to the seller's shareholders too.
Light, not copper
The logic is the AI data centre. Moving data between thousands of AI chips increasingly means sending it as light rather than electricity. Marvell makes the chips that drive those links, and Lumentum makes the lasers and optical parts.
Investors' concern was the price and what it signals. "While a coming together of Marvell and Lumentum may make business sense, the question as to whether it makes financial sense will hinge on how much Marvell management is willing to pay," wrote Chris Versace, lead portfolio manager at TheStreet Pro.
Downgrades follow
Analysts moved quickly. TD Cowen cut Marvell to hold and Bank of America to neutral, and several brokers lowered their price targets, Investing.com reported. BofA's Vivek Arya cut his target to $225 from $400. He pointed to a long regulatory process, including in China, and said $1bn of cost cuts would not offset roughly 50 per cent dilution in the share count, CNBC reported. Of 45 analysts covering Marvell, 40 still rate it a buy.
The timing was poor. Marvell had already fallen 10 per cent on Friday during a broad tech sell-off. The Philadelphia Semiconductor Index has fallen about 19 per cent in the past month. A $115bn bet on that build-out tested their nerves.
*Image: Marvell's offices in Santa Clara, California. Photo: King of Hearts / Wikimedia Commons, CC BY-SA 3.0*
