Marvell to buy Lumentum in $115 billion deal in AI data-center bet

By Anhata Rooprai and Aditya Soni

Nov 2 (Reuters) - Marvell Technology is buying optical components maker Lumentum in a $115 billion all-stock deal, including debt, as the custom chipmaker takes on larger rival Broadcom in a race to cash in on the AI spending boom.

The deal, announced on Monday, is one of the biggest in 2026 and among the boldest bets yet on the AI build-out that chip executives expect to underpin industry demand for years.

The heavy spending, however, is also facing a major reality check as investors begin to doubt its sustainability in the face of tightening margins and slowing cash flow, triggering a selloff in chip stocks.

"AI infrastructure is undergoing a fundamental architectural shift toward optical connectivity, creating an opportunity that comes along once in a generation," said Marvell CEO Matt Murphy, who will remain chairman and CEO of the combined company.

"We intend to help shape the next era of AI connectivity and create exceptional stockholder value."

Lumentum shares fell more than 10%, while Marvell was down over 5% in early trading. Both stocks have fallen sharply since deal talks were first reported late last month due to the AI bubble concerns.

By buying Lumentum - a company roughly half its size - Marvell is betting that Big Tech's AI spending boom is here to stay and would keep demand for optical components used to move data at high speeds outstripping supply.

Lumentum makes photonic products, including high-performance lasers and optical components used in AI, cloud computing and communications networks.

It could also give Big Tech firms building custom chips with Marvell more firepower against Nvidia, which invested $2 billion each in Marvell and Lumentum earlier this year.

Nvidia, one of the biggest backers of optical connectivity technologies as data centers grow bigger and more complex, did not immediately respond to a request for comment on the deal.

Just three years ago, Marvell was a relatively little-known chipmaker. But its market value has since surged to more than $170 billion, thanks to its role in helping tech giants such as Amazon develop custom AI chips and networking technology for data centers.

"Combining Marvell's custom chips and networking expertise with Lumentum's optical components could give it a much stronger hand as data centers demand ever-faster, more energy-efficient connections," said Axel Rudolph, chief technical analyst at IG Group.

"But this is an enormous bet, and investors are right to ask whether Marvell is paying too much and taking on too much at once."

Monday's deal could also add more muscle to Marvell in its race with rival Broadcom, which has long been Alphabet-owned Google's main custom-chip partner and offers customers a broader menu of AI data center hardware under one roof.

Marvell notched one of its biggest wins in August, signing a deal to supply chips that sit alongside Google's AI processors worth up to $120 billion in sales through fiscal 2033, giving the search giant the right to buy a $12.2 billion stake.

At its investor day in October, Marvell forecast fiscal 2031 sales of $70 billion to $90 billion. It expects around $37.5 billion of that to come from interconnect, a market it expects to grow 65% a year to $65 billion by 2030.

HOW THE DEAL IS STRUCTURED

Under Monday's agreement, Marvell will pay $1,132 per share in stock, a 23.9% premium to Lumentum's last unaffected closing price on October 28, before deal talks were first reported.

That gives the deal an equity value of $102.54 billion.

Marvell said the acquisition would expand the combined company's total addressable market to $550 billion.

Lumentum shareholders will receive 4.5 Marvell shares for each share they own, giving them roughly 33% stake in the combined company, while Marvell investors will own the rest.

The transaction was unanimously approved by the boards of both companies and is expected to close in the first half of calendar 2028.

Marvell will have to pay Lumentum $5.8 billion as termination fee if its board drops support for the deal or it walks away to accept a takeover offer for itself.

Lumentum would owe Marvell $2.9 billion in similar circumstances, a regulatory filing showed. Marvell would also pay $3.2 billion if regulators block the deal.

LUMENTUM MAY BENEFIT FROM PROPOSED CHINA BAN

Lumentum, which competes with US-listed Coherent and China's Zhongji Innolight, stands to benefit from a proposed US ban on new Chinese optical transceivers that could shift demand toward domestic suppliers.

Separately, Lumentum said it expects second quarter revenue between $1.58 billion to $1.63 billion, exceeding analysts’ average estimate of $1.48 billion, according to data compiled by LSEG.

Marvell has already been beefing up its photonics business this year. It closed a $3.5 billion purchase of Celestial AI in February as rising use of AI agents and chatbots drives demand for faster optical links connecting thousands of chips in AI data centers.

Shares of Marvell hit a record high in June after Nvidia CEO Jensen Huang called the custom chipmaker the next "trillion-dollar company." Its annual revenue has more than doubling from $3 billion in fiscal 2021 to $8.2 billion in fiscal 2026.

Marvell's acquisition of Lumentum is its largest purchase since its $10 billion buyout of Inphi in 2021.

(Reporting by Anhata Rooprai and Aditya Soni in Bengaluru; Editing by Arun Koyyur)