Marvell Technology shares fell after the company agreed to buy optical laser maker Lumentum in an all-stock deal. Investors worry Marvell is paying a steep price, while Marvell appears to see an opening in combining the two companies' technologies for next-gen AI systems.
Shares of Marvell Technology plunged 10% as of 12:54 p.m. EDT, after the communications semiconductor company announced it had agreed to purchase Lumentum. Lumentum is a leader in optical lasers.
The deal is all-stock, and Marvell will buy Lumentum at roughly a $115 billion valuation, a 24% premium.
Investors question the price
The premium is not egregious, but the price still worries investors. Lumentum's stock had already rocketed higher over the past two years, and Marvell's purchase price represents more than five times Lumentum's share price one year ago. As a result, investors fear Marvell may be paying a steep price for the asset.
Separately, investors have recently been dumping AI-related stocks amid a host of potential fears ahead of the mid-term elections.
Why Marvell wants Lumentum's lasers
Marvell likely coveted Lumentum for the same reason Lumentum's stock has rallied over the past year. Its proprietary optical laser technology is increasingly sought and required by next-gen artificial intelligence systems.
AI requires many more optical interconnects between data centers. As speeds increase, server racks will also begin replacing traditional copper interconnects with near-packaged and co-packaged optics inside racks, and eventually even inside servers.
Marvell already produces a co-packaged optics solution. Even so, its management appears to see more opportunity in pairing Marvell's digital signal processors and XPU-attach connectivity with Lumentum's indium phosphide laser technology to yield highly differentiated products for next-gen AI systems.
Source: The Motley Fool
Trading involves risk.
Risk Disclaimer
