Marvell stock jumps 7%, and it has Google to thank

Marvell Technology MRVL stock gained 7% on Wednesday as it expands its relationship with Google amid accelerating demand for custom AI chips, giving the Alphabet-owned company the option to acquire a stake worth up to $12.2 billion in the chipmaker.

Google gets potential 7% stake in Marvell

Under the agreement, Marvell issued Google a warrant to purchase up to 58.97 million shares at an exercise price of $206.58 per share. 

If fully exercised, the warrant would be worth about $12.18 billion and represent roughly 7% of Marvell's outstanding shares.

Reuters calculations showed that such a stake would make Google Marvell's fifth-largest investor, based on LSEG data.

However, most of the potential stake is tied to the performance of the partnership rather than simply the passage of time. 

Only 1.36 million shares covered by the warrant will vest through equal quarterly installments during the first year.

The remaining shares are divided into 240 equal tranches running from Marvell's third quarter of fiscal 2027 through fiscal 2033. 

One tranche will vest for every $500 million in eligible custom-products revenue generated through Google's business.

That structure means Google would need to generate significant revenue for Marvell through the partnership before most of the potential stake becomes available.

Marvell expands work on Google's custom AI chips

The partnership covers a broad range of chips and technologies designed to work with Google's tensor processing unit ecosystem, which supports much of the company's AI infrastructure.

The work includes AI inference accelerators, storage controllers, network interface controllers, memory interface controllers and near-memory compute products.

Demand for custom chips such as Google's TPUs has increased as companies seek alternatives to Nvidia's graphics processors and technologies that are better suited to inference, or the process of running trained AI models.

Marvell shares rose following news of the agreement. The stock's gains contrasted with a decline of more than 2% in shares of Broadcom, Google's existing major custom AI chip partner.

Broadcom currently holds more than 70% of the custom AI chip market and has forecast $100 billion in AI chip revenue by 2027.

Google deal adds to AI infrastructure spending

The agreement comes as technology companies prepare to spend heavily on AI infrastructure. 

Big Tech companies recently reinforced expectations that they would spend more than $700 billion on AI infrastructure this year, up from about $400 billion last year.

Marvell is competing with Broadcom for a larger role in Google's custom silicon requirements. 

Broadcom signed a long-term agreement with Google in April to develop and supply future generations of custom AI chips and other components for Google's next-generation AI racks through 2031.

Marvell's new arrangement gives Google exposure to the chipmaker while linking the potential equity stake to the volume of business generated through the partnership.

For Marvell, the agreement provides a mechanism to deepen its relationship with one of the world's largest technology companies as demand for custom silicon expands. 

For Google, the deal adds another chip development relationship as it continues building its TPU ecosystem and AI infrastructure.