Chipmaker Marvell will acquire Celestial AI for up to $5.5 billion. This move aims to acquire Celestial AI's leading "photonic interconnection" platform to enhance Marvell's technical strength in the field of AI data center connectivity, thereby competing with Nvidia and Broadcom in the high-end connectivity market. The deal is also backed by warrants from Amazon. After the news, the company's stock price rose 13% after hours.
Chipmaker Marvell Technology is making a big bet on the future of AI infrastructure with a multi-billion-dollar strategic acquisition.
On Tuesday, Marvell announced that it would acquire semiconductor startup Celestial AI for $3.25 billion in cash and stock. Under the agreement, the total value of the deal could rise to up to $5.5 billion if Celestial AI reaches certain revenue milestones.
The core of this acquisition is photonic interconnection technology, which is regarded as the key to solving the bottleneck of AI computing power.As large language models continue to increase in size and complexity, data centers need to connect hundreds or thousands of chips into a cooperating whole, and traditional copper wire connections are reaching their limits. Marvell's move is intended to seize the opportunity of technological transformation from "electricity" to "light".
More importantly,Marvell is strengthening its competitiveness in the AI data center connection field and competing with Nvidia and Broadcom by acquiring Celestial AI's leading photonic interconnect technology. At the same time, Marvell received blessings from giants. Marvell issued stock warrants to its major customer Amazon, deeply binding the acquisition with future product purchases, showing key customers' recognition of the technology.
This news, along with the company's strong financial report and optimistic guidance, immediately ignited market enthusiasm. Marvell shares soared as much as 13% in after-hours trading on Tuesday. The company expects its data center business revenue to grow 25% in the next fiscal year, driven by demand for AI.
A bet of up to $5.5 billion
Under the terms of the deal, Marvell will pay $1 billion in cash and 27.2 million shares of Marvell common stock valued at $2.25 billion for the acquisition. In addition, the agreement also contains an important "gamble" clause: if Celestial AI can achieve cumulative revenue of $2 billion by the end of fiscal 2029, Marvell will pay additional payments to bring the total transaction amount to a cap of $5.5 billion.
The transaction is expected to close in the first quarter of 2026.
"This acquisition builds on our technology leadership, broadens our addressable market in large-scale connectivity, and accelerates our roadmap to deliver the industry's most complete connectivity platform to AI and cloud customers," Marvell CEO Matt Murphy said in a statement.
Marvell expects Celestial AI to generate significant revenue contributions starting in the second half of fiscal 2028, reaching $500 million in annualized revenue by the fourth quarter of fiscal 2028, and doubling to $1 billion in annualized revenue in the fourth quarter of fiscal 2029.
Photonic interconnection: the “nervous system” of AI data centers
Celestial AI was founded in 2020 and focuses on developing photonic interconnection hardware. Its core product is called "Photonic Fabric (or Photonic Interconnection)". The technology uses optical signals rather than traditional electrical signals to transmit data between chips, aiming to achieve higher data transmission bandwidth with lower latency and power consumption.
With the explosive growth of AI models' demand for computing power, data transmission bottlenecks have become increasingly prominent. Photonics technology is seen as key to the next generation of high-performance computing because of its ability to transmit more data faster and support longer physical connections than traditional copper wires. Celestial AI claims that its photonic interconnect platform can increase inter-chip bandwidth by up to 25 times while significantly reducing power consumption.
Celestial AI CEO David Lazovsky previously said that its technology platform "can meet these critical needs while setting new standards for bandwidth, latency, energy efficiency and total cost of ownership." The startup’s investors include AMD Ventures and BlackRock, and its board of directors includes industry veterans such as former Intel CEO Lip-Bu Tan.
By acquiring Celestial AI, Marvell aims to build a "silicon photonics technology giant" and directly enter the high-end connectivity market dominated by Nvidia and Broadcom.According to Reuters, Marvell CEO Matt Murphy said that this technology will open up a new market worth $10 billion for Marvell. He predicts that large cloud computing companies will begin large-scale deployment of photonics technology in 2027 or 2028.
It is worth noting thatMarvell has also reached an in-depth tie-up with Amazon. As part of the deal, Marvell issued a stock warrant to Amazon, allowing Amazon to purchase up to $90 million worth of Marvell stock at an exercise price of approximately $87 through the end of 2030, based on the amount of its purchases of photonic interconnect products.
This move not only locked in potential future orders, but was also interpreted by the market as a strong endorsement of this technical route by key customers. Dave Brown, vice president of Amazon Web Services (AWS), said in a statement that Marvell's acquisition of Celestial will "help further accelerate optical scaling innovation for next-generation AI deployments."
Before announcing the acquisition, Marvell's stock price had fallen by more than 15% in 2025, underperforming competitors whose valuations had soared due to the AI boom. However, the acquisition announcement and a brilliant financial report completely reversed the market sentiment.
Marvell's third-quarter financial report showed earnings of 76 cents per share on sales of $2.08 billion, both exceeding analyst expectations compiled by LSEG. The company also forecast fourth-quarter revenue of $2.2 billion, also higher than market expectations of $2.18 billion.
What excites the market even more is the company's outlook for the future. Marvell expects total revenue to reach approximately US$10 billion in the next fiscal year, with data center revenue growing by 25% and custom chip business growing by 20%.