Driven by AI boom, chipmakers announce $115 billion merger

AI investment is surging as companies pour billions into data centres, chips and other infrastructure, betting on productivity gains that have yet to fully materialise. (Image: Magnific)

Marvell Technology on Monday announced a $115 billion stock swap to buy Lumentum Holdings, in a major bet that a technology known as optical networking will be crucial to the build-out of data centers for artificial intelligence.

The transaction between the two Silicon Valley companies, which includes Lumentum’s debt, would rank as the largest ever by value between publicly held tech companies.

Marvell makes an array of chips for networking and AI. The 31-year-old company has been growing rapidly by acquisition since Matthew Murphy joined it as CEO in 2016.

Lumentum makes lasers and a series of other chips and components that use light to transmit data signals, a mainstay of long-distance communications known as optical networking, which is increasingly used in data centers.

The deal, the companies said, reflects a realization that needs for AI computing power have far outstripped the abilities of individual chips. Companies such as Nvidia now sell entire racks full of special-purpose AI processors that are designed to work together like a single system.

As many of those racks, in turn, increasingly are connected together so they can work as one system, companies are seeking to replace copper connections with faster laser-based links close to individual AI chips, a trend called co-packaged optics.

“The companies that move first and help define this transition will set the standard for decades to come,” Murphy said in prepared remarks.

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There will be plenty of competition. Nvidia, which has become a major provider of networking technology, in March invested $2 billion each in Lumentum and Coherent, a rival in optical technology, and issued purchase commitments for their technology. Nvidia also recently invested $2 billion in Marvell.

Other major networking players include Broadcom, which like Marvell sells networking chips and helps other companies design AI accelerators.

Under the deal, Lumentum shareholders would receive 4.5 shares of Marvell common stock for each share they held, implying that Lumentum investors would own about a third of the combined company. Bloomberg reported the companies were in deal talks last week.

Lumentum shares fell 11%, while Marvell shares were down about 6%.

One possible reason for the muted investor enthusiasm is skepticism that the deal will be completed. Saja Dogra, an analyst at Rosenblatt Securities, last week predicted an antitrust review that could take 12 to 18 months and include intense scrutiny by regulators in China.

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Marvell predicted the deal would close in the first half of 2028.