Marvell Technology is making one of its biggest bets on AI infrastructure, agreeing to acquire Lumentum Holdings in an all-stock deal valued at roughly $115B. The acquisition would strengthen Marvell's position in optical networking, but its enormous price tag is drawing comparisons to deals made during the dot-com bubble.
Why Marvell wants Lumentum
As AI data centers grow, the technology connecting thousands of chips is becoming increasingly important. Traditional copper wiring struggles to transmit massive amounts of data over longer distances, creating demand for fiber-optic connections that use light to move information faster and more efficiently.
Marvell and Lumentum estimate the market opportunity at $550B, with Marvell CEO Matt Murphy describing the transition toward optical connectivity as a once-in-a-generation opportunity.
The acquisition would also help Marvell compete with Broadcom, which already offers more complete optical networking systems. University of Calgary accounting professor Anup Srivastava noted that Marvell currently supplies individual components, while Lumentum would fill a critical gap.
Lumentum manufactures specialized lasers used in optical transceivers, giving Marvell greater control over its supply chain. However, RBC analysts warned that bringing manufacturing operations into Marvell's largely fabless business model could create integration challenges and margin volatility.
Why the price is raising concerns
Under the agreement, Lumentum shareholders will receive 4.5 Marvell shares for each share they own, representing a 24% premium to Lumentum's Oct. 28 closing price. The transaction will be financed entirely through stock, with no cash involved.
That structure has attracted scrutiny because Marvell itself trades at elevated valuations. The company entered the announcement with a market capitalization of roughly $172B and a price-to-earnings multiple of about 65x, according to FactSet.
University at Buffalo accounting professor Feng Gu warned that highly valued technology companies can use their shares to finance increasingly expensive acquisitions, a pattern common during the dot-com boom.
He pointed to JDS Uniphase, whose earnings multiple exceeded 100x and sometimes approached 200x during the internet bubble. The concern is that Marvell could be paying a substantial premium based on AI growth expectations that may take years to materialize.
A familiar story from the dot-com era
The comparison to JDS Uniphase is particularly relevant because Lumentum itself emerged from that company's breakup.
JDS Uniphase became a major fiber-optic supplier during the late 1990s, expanding through stock-funded acquisitions as investors poured money into internet infrastructure. The company eventually split into Viavi Solutions and Lumentum in 2015.
JDSU's SDL Deal Lost Most of Its Value Before It Closed
Value of the all-stock SDL acquisition, $B, at announcement vs at closing
Bar chart. At announcement: Value ($B) $40. At closing: Value ($B) $13.
Source: MarketWatch
One of its biggest transactions was the acquisition of SDL, initially announced at approximately $40B. By the time the deal closed, its value had fallen to roughly $13B as technology stocks collapsed. JDS Uniphase subsequently recorded a loss of about $50B.
While today's AI infrastructure market is different, the parallels have revived concerns about companies pursuing expensive acquisitions during periods of unusually high valuations.
What it means for shareholders
Marvell investors will own approximately 67% of the combined company, while Lumentum shareholders will hold the remaining 33%. The acquisition is expected to close in the first half of 2028, subject to regulatory and shareholder approvals.
Marvell Holders Keep Two Thirds of the Combined Company
Expected ownership split after the deal closes, % of shares
Pie chart. Marvell Shareholders: Ownership % 67%. Lumentum Shareholders: Ownership % 33%.
Source: Investing.com, MarketWatch
The extended timeline adds uncertainty because the exchange ratio is fixed, meaning the value Lumentum shareholders ultimately receive depends on Marvell's share price.
Analysts also disagree on who faces the greater risk. Srivastava believes Lumentum shareholders are exposed to potential declines in Marvell's valuation, while Gu argues that Marvell's existing investors could bear the cost if the company overpays.
There are potential benefits. Marvell has already expanded its optical networking capabilities through its acquisition of Celestial AI, and the companies expect the Lumentum combination to generate more than $1B in annualized cost savings.
For investors, the acquisition offers greater exposure to a fast-growing part of the AI infrastructure market, but its success will depend on sustained demand and Marvell's ability to integrate a major manufacturing business. With the deal not expected to close until 2028, the company has considerable work ahead to justify its price tag.
