Adam Spatacco, The Motley Fool
5 min read
In early June, Nvidia CEO Jensen Huang called Marvell Technology (NASDAQ: MRVL) the next trillion-dollar company. Huang explained that Marvell’s connectivity solutions are essential for coordinating large clusters of processors powering artificial intelligence (AI) systems.
Wall Street initially embraced this optimism. Marvell shares surged to about $291 on June 2 and reached a record closing price of nearly $316 just two days later. However, enthusiasm around Marvell seems to have evaporated. As of Nov. 2, Marvell stock traded at $171, representing a decline of 46% from its peak.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
The sell-off follows Marvell’s announcement that it is acquiring optical networking specialist Lumentum (NASDAQ: LITE) in a $115 billion deal. Let’s unpack why Wall Street is reacting so negatively to this news and assess whether investors are overlooking the long-term opportunity.
Why Jensen Huang sees trillion-dollar potential in Marvell
Marvell is quietly becoming an important supplier to the AI infrastructure supercycle. The company’s custom application-specific integrated circuits (ASICs) allow hyperscalers to build processors optimized for particular training and inference workloads, while its networking and connectivity products help transfer information between chips and servers.
Nvidia recognized this opportunity early on, announcing a $2 billion investment in Marvell and a partnership involving its NVLink Fusion platform. The collaboration allows AI developers to combine custom silicon designed by Marvell with Nvidia’s broader computing and networking architectures.
Why the Lumentum acquisition sent Marvell stock plunging
On Nov. 2, Marvell announced an agreement to acquire Lumentum in an all-stock transaction carrying an implied enterprise value of approximately $115 billion. The acquisition values Lumentum at approximately $1,132 per share, representing a 24% premium to its closing price on Oct. 28, right as speculation about the deal surfaced.
The transaction’s structure is important to understand. Rather than paying cash or taking on debt to finance the acquisition, Marvell will issue 4.5 new shares for every outstanding Lumentum share. Following the transaction, Marvell shareholders will own 67% of the combined company while Lumentum shareholders will control the remaining 33%.
