Why Marvell Stock Is Down Today

Source The Motley Fool

Key Points

  • Marvell shares fell after Bloomberg reported that the chipmaker is in advanced talks to acquire Lumentum.

  • The deal is expected to be all stock, according to Bloomberg, which would dilute existing Marvell shareholders.

  • Lumentum could expand Marvell’s optics business, but the deal’s price and other terms remain unknown.

  • Motley Fool Issues Rare "Total Conviction" Buy Alert ›

Marvell Technology (NASDAQ:MRVL) stock is sinking, down 13.9% as of 2:44 p.m. ET on Thursday, Oct. 29, after a report said the chipmaker is close to buying a big optics supplier.

The S&P 500 and the Nasdaq Composite were down 0.7% and 1.7%, respectively.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

Glowing AI microchip with blue and purple circuit pathways on a dark background.

Image source: Getty Images.

Marvell has its eye on Lumentum

Bloomberg reported after Wednesday's close that Marvell is in advanced talks to acquire Lumentum, a company that builds key optical components for AI data centers. An announcement could land as early as next week according to the report, but nothing has been finalized.

Marvell can't just write a check

Marvell has about $3.93 billion in cash and equivalents, and given Lumentum's $83 billion market cap, Bloomberg has reported it is likely to be all stock. That means dilution for existing shareholders. The company actually acquired a smaller optics company last year, in a $3.5 billion deal that included $1 billion in cash. This would be substantially larger.

The price tag is the real question

Marvell's overall business is humming, with Q2 revenue up 37% to a record $2.74 billion. I think optics is a smart place for Marvell to grow, but this is a massive deal relative to its size, and whether it pays off is a question we can't really answer until more details come to light.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lumentum and Marvell Technology. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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