Marvell Acquires Celestial AI for Up to $5.5 Billion
Marvell Technology’s pursuit of dominance in AI infrastructure hinges on a single breakthrough: optical interconnects that slash data center power consumption. The company’s agreement to acquire Celestial AI positions it to integrate silicon photonics directly into custom silicon, potentially unlocking terabit-scale bandwidth without the thermal bottlenecks plaguing copper-based systems. This move arrives amid surging demand for efficient scaling in hyperscale environments, where energy costs now rival hardware expenses.
Celestial AI, founded in 2020, specializes in the Photonic Fabric platform, a disaggregated compute architecture that routes data optically between compute and memory dies. The technology employs microLEDs to transmit signals at speeds exceeding 4 terabits per second per channel, reducing latency to under 1 nanosecond while consuming 90 percent less power than traditional electrical interconnects. Marvell plans to embed this into its custom AI accelerators, targeting deployments in next-generation GPU clusters.
The deal values Celestial AI at $3.25 billion upfront in cash and stock, with an additional $2.25 billion contingent on performance milestones through 2028. Marvell’s board approved the transaction on December 2, 2025, following regulatory consultations with the U.S. Committee on Foreign Investment. Integration teams from both companies will prioritize compatibility with existing PCIe and CXL standards, enabling drop-in upgrades for data center operators.
Marvell’s third-quarter fiscal 2026 results underscore the strategic fit. Revenue climbed 37 percent year-over-year to $2.08 billion, driven by a 120 percent surge in data center sales to $1.51 billion. The segment now accounts for 73 percent of total revenue, up from 55 percent a year prior. Chief Executive Matt Murphy attributed the growth to hyperscaler orders for 2-nanometer custom silicon, with deployments ramping at major cloud providers.
Guidance for the fourth quarter projects revenue of $2.25 billion, surpassing analyst estimates of $2.12 billion, fueled by 25 percent data center expansion into fiscal 2027. Marvell forecasts custom compute revenue doubling to $1.5 billion next year, incorporating early contributions from Celestial AI’s optics. Analysts at Stifel raised their price target to $114 per share, citing the acquisition’s acceleration of Marvell’s optical roadmap.
Celestial AI’s innovations address a core AI scaling challenge: the von Neumann bottleneck, where data movement between processors and memory consumes up to 40 percent of cluster power. The Photonic Fabric employs wavelength-division multiplexing to parallelize optical channels, supporting up to 1,024 simultaneous links per die. Early pilots with Amazon Web Services demonstrated 2.5 times higher throughput in inference workloads compared to electrical alternatives.
Regulatory scrutiny remains a hurdle, given Celestial AI’s ties to U.S. Department of Defense contracts for secure AI edge computing. The deal requires clearance under the Hart-Scott-Rodino Act by March 2026, with potential national security reviews extending timelines. Marvell has committed $500 million to R&D integration, focusing on hybrid electro-optical fabs in Santa Clara and Taiwan.
Broader industry consolidation signals intensifying competition. Broadcom’s $69 billion VMware acquisition earlier this year bolstered its software-defined networking, while Nvidia’s $2 billion stake in Synopsys enhances chip design flows. Marvell’s bet on photonics differentiates it, as optical I/O becomes essential for exascale AI training clusters projected to exceed 1 million GPUs by 2028.
Celestial AI’s team of 150 engineers, including veterans from Intel and Applied Materials, will relocate to Marvell’s Silicon Valley campus. The startup raised $275 million prior to the deal, from investors including Fidelity and Temasek. Post-acquisition, Photonic Fabric will extend to Marvell’s PAM4 optical DSPs, targeting 1.6 terabit transceivers for 800G Ethernet switches.
Marvell’s stock rose 8 percent in after-hours trading following the announcement, reflecting investor confidence in its AI pivot. The company holds $1.2 billion in cash reserves, sufficient to fund the upfront payment without diluting shares beyond the stock component. Fiscal 2027 projections include $9 billion in total revenue, with data center optics contributing 15 percent.
This acquisition cements Marvell’s evolution from storage controller provider to full-stack AI silicon architect. With hyperscalers like Microsoft and Google committing $100 billion annually to infrastructure, optical efficiency emerges as a decisive edge. Marvell’s integrated approach could capture 20 percent market share in AI interconnects by 2030, per Gartner estimates.
