Marvell Technology will help develop Google's in-demand custom chips and has offered the search giant the right to buy a potential $12.2 billion stake, the chip maker said on August 19.
Marvell share's rose 10% on the day of the announcement while its larger rival Broadcom, which had been Google's main custom chip partner , fell 5%.
What the deal could mean for revenue and valuation
Under the terms of the deal, Marvell is expected to supply some of the surrounding technology enhancing Google's in-house AI chips, which spans networking, memory and more. As part of the pact, Google gets warrants to buy nearly 59 million Marvell shares at $206.58 each, a slight discount to where they’ve traded recently. In total, that’s about $12.2 billion if fully exercised. After an initial slug, the warrants vest in tranches depending on how many orders Google makes. At the top end, the structure implies that the search giant could buy up to $120 billion of custom products through early 2033.
From the remainder of this year through 2032, Marvell is estimated to make $190 billion in revenue, according to Visible Alpha, meaning that the partnership could provide an over-60% bump.
Assume Google smoothly ramps its purchases so that it’s ordering just shy of $5 billion in products each quarter. In that case, pre-deal expectations that Marvell would generate $43 billion in sales in 2032 should be bumped up to around $62 billion. Put that figure on the same 4.4-times multiple of far-off revenue at which the enterprise traded prior to the announcement, and it implies an equity value of $270 billion, after backing out net debt. Investors, for the moment, are being even more conservative: the company’s market value ended Wednesday below $210 billion.
Why the trillion-dollar target still looks distant
To reach the 13-figure club, Marvell would in theory need to generate nearly $230 billion of additional sales. It makes sense: ultimately, the custom chip business is fairly niche, and competition is fierce. Google already has a relationship with Broadcom, the dominant supplier of bespoke chips. Marvell's deal may broaden the YouTube owner's supplier base, but does not necessarily displace its $1.7 trillion rival.
Huang's endorsement, coupled with a $2 billion investment from Nvidia, is still a powerful indicator. So far this year, Marvell's stock has outperformed its peers, including Broadcom AVGO.O. Reaching their size, however, will require far more than Google's commitment.
Marvell’s Google deal lifts the $1 trillion debate
Marvell Technology MRVL.O is basking in the glow of possibility. Already, industry kingpin and Nvidia NVDA.O boss Jensen Huang had singled out the $200 billion chipmaker as the next $1 trillion company. On Wednesday, it struck a partnership with Alphabet-owned Google GOOGL.O that could generate billions in revenue, helping to realize the vision. Even so, Huang's June prediction remains a long, long way off.
MRVL•
