Marvell’s Deal to Acquire Lumentum Could Be a Game Changer for the Stock

The two companies’ optics technologies are very complementary. In an optical network, Marvell provides electronic components such as DSPs (digital signal processors) that prepare data to be converted into optical signals; transimpedance amplifiers (TIAs) that convert light signals back into electrical signals; and silicon photonics (SiPho) engines that combine hundreds of components to improve the performance and energy efficiency of optical interconnects.

Lumentum produces high-power indium phosphide (InP) lasers and gallium arsenide (GaAs) vertical cavity surface-emitting lasers (VCSELs) that convert electricity into light for high-speed data transmission. It is one of a handful of companies with this technology for these advanced lasers. Designing and manufacturing these lasers is a complex task, and the company holds over 1,000 patents and owns specialized semiconductor fabs (manufacturing facilities).

Marvell said that the acquisition will allow it to go from producing components to full modules. It will also create meaningful design and operational efficiencies for its customers. It believes that integrating its technology with Lumentum is ultimately needed to take bandwidth, latency, and power efficiency to the next level.

The deal will combine what are expected to be two of the S&P 500‘s fastest-growing companies by earnings per share (EPS) from 2026 through 2028. Meanwhile, Marvell believes its combined total addressable market (TAM) will be around $550 billion by 2030. It sees $1 billion in potential annual synergies with the deal, largely coming from a reduction in cost of goods sold. Excluding synergies, the company will have a $17.7 billion annual revenue run rate with 57% gross margins and 39% operating margins.

As part of the deal, Lumentum shareholders will receive 4.5 Marvell shares for each share they own. The deal valued Lumentum at an enterprise value of $115 billion, or about $1,132 per share, at the time of the announcement. That represents about a 24% premium to its closing price before the announcement. The deal is expected to close in the first half of calendar 2028.

Time to buy the stocks

Both Marvell and Lumentum have been riding the shift in AI data centers from copper wire to optical networks, which offer better bandwidth and lower energy costs. As AI innovation continues to advance and systems become more powerful, the need for optical networking should only grow.

Both companies are already seeing strong growth individually. Lumentum reported its fiscal first-quarter results the same day as the merger announcement. It grew its revenue by 137% to $1.26 billion, while its gross margins climbed 1,700 basis points to 51%. Meanwhile, Marvell had guided for its current quarter revenue to increase by 52%, with data center revenue surging 75%. The combined company will become a juggernaut in the optical space.

Marvell is more than optics, though, as it is also a leader in custom AI chips. It provides important IP (intellectual property) for both Amazon‘s AI Trainium chips and Microsoft‘s newer Maia chips. It also recently won a deal to supply Alphabet‘s Tensor Processing Unit (TPU) architecture with important attach components, such as inference accelerators, storage controllers, NICs, memory interface controllers, and near-memory compute.

Marvell’s pending acquisition of Lumentum, plus its strength in custom AI chips, gives Marvell one of the best long-term growth outlooks in the AI infrastructure space. That makes the AI stock a buy, with Lumentum being a discounted way to own Marvell — although there is always some risk that a deal may not go through.

Geoffrey Seiler has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Lumentum, Marvell Technology, and Microsoft. The Motley Fool has a disclosure policy.