Marvell Technology has announced its acquisition of artificial intelligence startup Celestial AI in a deal valued at $3.25 billion. This significant news coincided with Marvell's third-quarter results for the current financial year, alongside a bullish forecast for its upcoming fiscal year. The acquisition is a strategic move by Marvell to significantly increase its share in the rapidly expanding market of artificial intelligence computing. Following the announcement, shares of Marvell Technology experienced an upward surge, trading up by 8.73% to $101 apiece in extended trading, compared to its Tuesday close of $92.89.

The financial structure of the Marvell-Celestial AI deal includes a $1 billion cash payment and Marvell shares valued at $2.25 billion. Celestial AI will receive 27.2 million shares of Marvell common stock as part of the equity component. Celestial AI, a Santa Clara, California-based startup founded in 2020, specializes in a groundbreaking technology known as photonic fabric. This innovative technology is designed to connect various components within AI infrastructure more efficiently.

The Celestial AI deal is poised to enable Marvell to leverage the startup's advanced work in photonics. This technology utilizes light signals rather than traditional electrical signals to establish connections between AI chips and memory chips, an area where Marvell competes with industry giants like Broadcom and Nvidia. Marvell CEO Matt Murphy emphasized the transformative potential, stating that Celestial AI's technology will be integrated into Marvell's next-generation photonics-related infrastructure products. He envisions this creating a substantial new market for the company, projected to be worth approximately $10 billion, remarking, “We’re going to have a silicon photonics powerhouse at Marvell when this is all done.”

Marvell anticipates that the Celestial acquisition will begin to contribute meaningful revenue starting in the second half of fiscal year 2028. Projections indicate an annualised run rate of around $500 million by the fourth quarter of fiscal 2028, further doubling to a run rate of $1 billion by the fourth quarter of fiscal 2029. The deal is expected to be finalized in the first quarter of calendar year 2026. Additionally, the agreement includes provisions for Celestial AI investors to receive up to an extra $2.25 billion in Marvell shares if the acquired business achieves specific cumulative revenue targets, with payouts commencing if cumulative revenue reaches $500 million by the end of Marvell’s fiscal 2029 and the full amount for $2 billion by that point.

Celestial AI had recently concluded a $255 million funding round in August, attracting backing from prominent investors such as Fidelity Management & Research Co., BlackRock Inc., and Advanced Micro Devices Inc. Intel Corp. Chief Executive Officer Lip-Bu Tan was also an investor and joined the company’s board earlier in the year.

Marvell has actively sought to position itself to capitalize on the booming AI spending, though its success has been varied. This acquisition of Celestial AI is considered a pivotal move that will significantly influence Marvell's future trajectory in the artificial intelligence sector. On a post-earnings conference call, Marvell reassured investors about winning repeat orders in its custom chip-design unit, forecasting a 20% increase in custom chip sales and predicting accelerated growth in this business, including a win with an “emerging hyperscaler” customer.

CEO Matt Murphy expressed strong optimism regarding the company's outlook, projecting Marvell’s revenue to reach $10 billion in the next fiscal year, surpassing analysts' predictions of $9.47 billion. For the fiscal fourth quarter, which concludes in January, Marvell forecast revenue of approximately $2.2 billion, an adjusted gross margin of about 59%, and earnings of 79 cents per share, largely aligning with Wall Street estimates.