Shares of Marvell Technology (MRVL.O) soared 9% in premarket trading on Wednesday following the company’s $3.25 billion acquisition of semiconductor startup Celestial AI. The deal underscores Marvell’s aggressive push into next-generation AI infrastructure and signals renewed investor confidence in the chipmaker’s strategic vision.

Marvell’s AI Expansion Strategy

Marvell is doubling down on AI-focused infrastructure after facing a challenging year marked by intense competition in custom AI chips and networking solutions. Despite a 16% decline in share value earlier this year, the Celestial AI acquisition positions Marvell to capitalize on the growing demand for generative AI and high-performance data center solutions.

The acquisition adds photonic technology to Marvell’s portfolio, enabling next-generation data center connectivity and putting the company in direct competition with industry leaders like Broadcom (AVGO.O) and Nvidia (NVDA.O). Photonic fabric technology uses light instead of electrical signals to link AI chips and memory, significantly increasing speed and energy efficiency in advanced data centers.

Strategic Collaboration with Amazon

As part of the deal, Marvell issued a warrant to Amazon.com (AMZN.O), allowing the tech giant to purchase Marvell shares tied to its photonic fabric product purchases through 2030. TD Cowen analysts commented, “Celestial AI, with Amazon’s backing, strengthens Marvell’s co-packaged optics (CPO) technology for custom XPUs and scale-up switching, making Marvell a more formidable competitor in AI infrastructure.”

Revenue Projections and Market Potential

Celestial AI’s technology is expected to contribute $500 million in annualized revenue by late fiscal 2028, potentially doubling to $1 billion the following year. Marvell’s CEO, Matt Murphy, projected that next-generation photonics products could open a $10 billion market for the company.

For the upcoming fiscal year, Marvell anticipates total revenue of approximately $10 billion, fueled by a 25% increase in data center sales. The company also forecasts a 20% rise in custom chip revenue, reflecting strong demand for AI-optimized semiconductors and infrastructure solutions.

Currently, Marvell trades at a 12-month forward price-to-earnings ratio of 27.25, which is notably lower than Broadcom’s 38.39, suggesting potential upside for investors seeking exposure to AI-driven chip innovation.

Positioning in the AI Chip Market

Marvell’s acquisition of Celestial AI places it at the forefront of the AI semiconductor revolution, particularly in photonics-based solutions that accelerate data center performance and efficiency. With hyperscale cloud providers racing to deploy faster and more energy-efficient systems to meet the demands of generative AI, Marvell’s enhanced technology stack could provide a significant competitive advantage.

The deal also signals the company’s commitment to cutting-edge AI research, advanced chip manufacturing, and scalable infrastructure solutions, positioning Marvell as a key player in the next wave of AI-driven technology growth.