Challenging NVIDIA? Marvell acquires Celestial AI, betting on "next-generation optical interconnect technology"

Chip manufacturer Marvell Technology is making a significant bet on the future of AI infrastructure through a multi-billion dollar strategic acquisition.

On Tuesday, Marvell announced it would acquire semiconductor startup Celestial AI for $3.25 billion in cash and stock. According to the agreement, if Celestial AI can achieve specific revenue milestones, the total value of the deal could rise to $5.5 billion.

The core of this acquisition is photonic interconnect technology, which is seen as key to solving the AI computing power bottleneck. As the scale and complexity of large language models continue to grow, data centers need to connect hundreds or thousands of chips into a cohesive whole, while traditional copper connections are reaching their limits. Marvell's move aims to seize the initiative in the technological transition from "electricity" to "light."

More critically, Marvell is enhancing its competitiveness in the AI data center connectivity space by acquiring Celestial AI's leading photonic interconnect technology, competing with Nvidia and Broadcom. At the same time, Marvell has the backing of major players. Marvell issued stock warrants to its key customer Amazon, deeply linking this acquisition with future product procurement, demonstrating key customers' recognition of the technology.

This news, along with the company's strong earnings report and optimistic performance guidance, immediately ignited market enthusiasm. Marvell's stock price surged by 13% in after-hours trading on Tuesday. The company expects its data center business revenue to grow by 25% in the next fiscal year, driven by AI demand.

A Bet of Up to $5.5 Billion

According to the terms of the deal, Marvell will pay $1 billion in cash and $2.25 billion worth of 27.2 million shares of Marvell common stock for this acquisition. Additionally, the agreement includes an important "earn-out" clause: if Celestial AI can achieve $2 billion in cumulative revenue by the end of fiscal year 2029, Marvell will pay additional amounts to bring the total deal value to the $5.5 billion cap.

The transaction is expected to close in the first quarter of 2026.

Marvell CEO Matt Murphy stated in a press release: "This acquisition builds on our technological leadership, expands our potential market in large-scale connectivity, and accelerates our roadmap to provide the industry's most complete connectivity platform for AI and cloud customers."

Marvell expects that starting in the second half of fiscal year 2028, Celestial AI will contribute significant revenue, reaching an annualized revenue of $500 million by the fourth quarter of fiscal year 2028 and doubling to $1 billion by the fourth quarter of fiscal year 2029

Photonic Interconnect: The "Nervous System" of AI Data Centers

Celestial AI was founded in 2020, focusing on the development of photonic interconnect hardware, with its core product known as "Photonic Fabric." This technology uses optical signals instead of traditional electrical signals to transmit data between chips, aiming to achieve higher data transmission bandwidth with lower latency and power consumption.

As the demand for computing power from AI models has exploded, data transmission bottlenecks have become increasingly prominent. Photonic technology can transmit more data faster than traditional copper wires and supports longer physical connection distances, making it a key component of next-generation high-performance computing. Celestial AI claims that its photonic interconnect platform can increase bandwidth between chips by up to 25 times while significantly reducing power consumption.

Celestial AI CEO David Lazovsky previously stated 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, with board members including industry veterans like former Intel CEO Lip-Bu Tan.

Targeting NVIDIA, Amazon Enters the Fray

By acquiring Celestial AI, Marvell aims to build a "silicon photonics technology giant," directly entering the high-end connectivity market dominated by NVIDIA and Broadcom. According to Reuters, Marvell CEO Matt Murphy stated that this technology will open up a new market worth $10 billion for Marvell. He expects large cloud computing companies to begin large-scale deployment of photonic technology by 2027 or 2028.

Notably, Marvell has also formed a deep partnership 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, based on the amount of photonic interconnect products it procures, before the end of 2030.

This move not only secures potential future orders but is also interpreted by the market as a strong endorsement of the technology route by a key customer. Dave Brown, Vice President of Amazon Web Services (AWS), stated in a press release that Marvell's acquisition of Celestial will "help further accelerate optical scaling innovations for next-generation AI deployments."

Strong Performance and Optimistic Guidance Boost Market Confidence

Before announcing the acquisition, Marvell's stock price had fallen over 15% cumulatively in 2025, underperforming competitors that had seen their valuations soar due to the AI boom. However, the acquisition announcement, along with a strong earnings report, completely reversed market sentiment.

Marvell's third-quarter earnings report showed earnings per share of 76 cents and sales of $2.08 billion, both exceeding analyst expectations compiled by LSEG. The company also forecasted fourth-quarter revenue to reach $2.2 billion, also higher than the market expectation of $2.18 billion What excites the market even more is the company's outlook for the future. Marvell expects total revenue for the next fiscal year to reach approximately $10 billion, with data center revenue growing by 25% and custom chip business growing by 20%