Marvell shares jump 12% as Google eyes $12.2 billion stake in AI chip deal

Marvell Shares Surge on Expanded Google AI Chip Partnership

Marvell Technology shares jumped more than 12% in premarket trading on Wednesday after the company expanded its partnership with Google to develop custom semiconductors for artificial intelligence. As part of the agreement, Google received a warrant to buy up to $12.2 billion worth of Marvell shares, according to multiple reports.

The deal, which builds on an existing collaboration between the two companies, is designed to give Google a bigger role in Marvell's custom chip development for its TPU ecosystem. Marvell said in a regulatory filing that the partnership, expanded on July 29, now covers a wide range of products including AI inference accelerators, storage controllers, network interface controllers, memory interface controllers, and near-memory computing technology.

The announcement sent Marvell stock sharply higher, with shares gaining more than 11% in premarket trading. Broadcom, which has been Google's main custom AI chip partner, saw its shares fall more than 2% in premarket trading, according to Reuters calculations cited by outlets. One outlet reported the decline at over 3%.

The Details of the Warrant and Investment Option

Under the agreement, Marvell issued Google a warrant on August 18 to purchase up to 58.97 million Marvell shares at an exercise price of $206.58 per share. If Google fully exercises the warrant, the shares would be worth approximately $12.18 billion, according to Reuters calculations. Such a stake would make Google Marvell's fifth-largest shareholder, based on LSEG data.

The warrant's availability is tied to Google's future purchases. Most of the warrant will become exercisable only if Google meets purchasing targets through fiscal 2033, a structure that aligns incentives. Specifically, about 1.36 million shares will vest through equal quarterly instalments during the first year, with the remainder vesting based on discretionary purchases, including one tranche for every $500 million in revenue generated from Marvell's custom products under the partnership.

Investor Sentiment and Analyst Views

Investors are excited about the deal because it signals Marvell's custom-silicon platform is gaining traction among hyperscale buyers like Alphabet, which could provide greater revenue visibility down the line. This positive sentiment is reflected in analyst actions reported by Barchart:

• TD Cowen reiterated a Hold rating but raised its price target from $200 to $225.
• UBS raised its price target from $300 to $310, maintaining a Buy rating. UBS believe Marvell's earnings per share could reach $10 by 2028 and $15 by 2030.
• KeyBanc raised its price target from $260 to $385 with an Overweight rating, noting that networking may draw more investor attention as more resilient than custom accelerators.

According to Barchart, the consensus rating among 35 analysts is 'Strong Buy', with a consensus price target of $269.31, implying about 15% upside. The Street-high target of $400 suggests a 70% upside.

Marvell's Financial Performance and Stock Trajectory

Marvell, headquartered in Santa Clara, California, reported record revenue for the first quarter of fiscal 2027, ended May 2. Revenue rose 28% year-over-year to $2.42 billion, beating estimates of $2.40 billion. Non-GAAP earnings per share grew 29% to $0.80, in line with expectations.

Data center revenue grew 27% to $1.83 billion, driven by strong demand for 800G PAM4 optical DSPs, while communications and other end-market revenue increased 29% to $585 million.

Marvell's stock has been on a strong run, with a 230% gain over the past 52 weeks and a 176% increase this year, according to Barchart. However, it reached a 52-week high of $329.88 on June 18 and has since corrected about 29%.

Marvell's Role in the AI Chip Landscape

The partnership marks a significant expansion of Marvell's role in Google's AI infrastructure. The collaboration focuses on developing chips and technologies optimized for Google's Tensor Processing Unit (TPU) ecosystem, designed to run trained AI models for inference tasks—a growing market as companies seek alternatives to Nvidia's expensive graphics processing units.

The demand for custom AI chips is rising because they offer lower costs and can be tailored for specific AI workloads. Tech giants are pouring billions into AI infrastructure: estimates suggest more than $700 billion will be spent this year, up from about $400 billion last year, according to reports.

Marvell's deal with Google comes as Broadcom, which signed a long-term agreement with Google earlier this year through 2031, faces new competitor. The development reflects a broader trend among major technology companies to invest in custom chip development to gain a competitive edge in AI.

Perspectives

• Google (Alphabet): The search giant expands its AI chip portfolio with Marvell, securing a significant stake in a key supplier to its TPU ecosystem.
• Marvell Technology: The deal validates its custom silicon and boosts its market position, potentially bringing in significant revenue.
• Broadcom (Competitor): Shares dropped as investors see Marvell gaining a larger share of Google's custom AI chip deals, potentially hurting Broadcom's growth.
• Analysts (TD Cowen, UBS, KeyBanc): Positive outlook on Marvell with raised price price targets, citing AI demand and custom silicon traction.