Marvell Announced a Google AI Deal That Could Generate Up to $120 Billion. The Stock Fell 8%

On August 19, Marvell Technology signed a custom-silicon agreement with Google that could potentially generate up to $120 billion in revenue. The deal involves Google purchasing custom chips tied to its Tensor Processing Unit (TPU) ecosystem, with the company receiving a warrant for up to 58.97 million Marvell shares. These shares vest in 240 tranches, with each tranche earned upon reaching a cumulative revenue milestone of $500 million from custom-product sales through fiscal 2033.

This scenario could provide Marvell with a significant growth opportunity, as Google is a hyperscaler-scale custom-chip program that will further boost data-center revenue. Marvell reported a revenue of roughly $2.74 billion, with data-center sales growing by 46% year over year. Management also raised the fiscal 2027 and 2028 revenue outlooks to approximately $12 billion and $18 billion, respectively.

However, the agreement's timeline and expectations pose risks. Marvell's CEO, Matt Murphy, stated that the larger Google contribution is not anticipated until fiscal 2029. Additionally, Marvell's shares are down by 8% due to the news. The forward P/E ratio of Marvell is approximately 58.4 times, compared to roughly 32.2 times for Broadcom.

Google continues to collaborate with Broadcom on the TPU stack, so the agreement does not imply Marvell displacing another supplier. For Google, the deal serves as a source of custom silicon covering inference accelerators, networking, storage, and memory-related products, along with potential equity upside through the warrants.

However, the payoff depends on Google generating enough cloud, advertising, and AI revenue to justify the spending. Hedge funds have been increasing their holdings in both Marvell and Google.