Marvell just made its biggest bet on the AI infrastructure arms race, announcing plans to acquire optical interconnect startup Celestial AI for up to $5.5 billion. The deal sends Marvell stock surging 15% as investors see the company positioning itself as the critical link between AI chips that power next-generation data centers.
Marvell just threw down the biggest acquisition in its history, and it's all about solving AI's most expensive problem: getting chips to talk to each other fast enough. The semiconductor company announced Tuesday it's acquiring Celestial AI for at least $3.25 billion in cash and stock, with the price potentially climbing to $5.5 billion if the startup hits ambitious revenue milestones. Investors loved the aggressive move, sending Marvell shares up 15% in extended trading after the company also beat third-quarter earnings expectations with 76 cents per share on $2.08 billion in sales. CEO Matt Murphy delivered another piece of good news on the earnings call, predicting data center revenue will jump 25% next year as AI infrastructure spending continues its breakneck pace. Behind the big numbers lies Marvell's calculated gamble on optical interconnects - the high-speed data highways that let AI systems scale from single chips to massive computing clusters. Celestial's "photonic fabric" technology uses light instead of traditional copper wires to connect hundreds of AI processors, enabling them to work as one giant brain for training and running the most sophisticated AI models. The timing couldn't be better for Marvell, which has watched semiconductor rivals like Broadcom ride the AI wave to massive valuation gains while its own stock fell 18% this year. Tech giants are currently committing hundreds of billions to AI infrastructure, and Marvell sees Celestial as its ticket to capture more of that spending. "This builds on our technology leadership, broadens our addressable market in scale-up connectivity, and accelerates our roadmap to deliver the industry's most complete connectivity platform for AI and cloud customers," Murphy said in a company statement. The startup wasn't exactly flying under the radar before this deal. Intel CEO Lip-Bu Tan joined Celestial's board in January, and Bloomberg reported the company raised funding at a $2.5 billion valuation in March. That means Marvell is paying a premium, but one that could pay off handsomely if optical connections become the standard for AI systems. The technology shift from copper to optical connections isn't just about speed - it's about economics. Current AI chip connections rely on copper wires that work fine for smaller systems but become a bottleneck when you're trying to link dozens or hundreds of processors. Optical connections can transfer more data faster over longer distances, though they cost more upfront. Vice President Dave Brown endorsed the acquisition, saying it will "help further accelerate optical scale-up innovation for next-generation AI deployments." That backing from one of the world's largest cloud providers suggests Marvell's bet has real customer traction behind it. The deal structure reveals Marvell's confidence in Celestial's technology. The maximum $5.5 billion payout requires Celestial to hit $2 billion in cumulative revenue by fiscal 2029 - an aggressive target that would validate the optical interconnect market's explosive growth potential. Marvell plans to integrate Celestial's technology directly into custom AI chips and network switches, creating what could become the industry's most complete connectivity platform. The company said the first application will connect systems based on "large XPUs" - the custom AI processors that tech giants are designing to power their most demanding workloads. With the acquisition expected to close early next year, Marvell is positioning itself at the center of AI's infrastructure buildout just as the technology reaches a critical scaling phase. The question now is whether optical interconnects will become as essential to AI as Marvell is betting they will.
