All the reasons Marvell investors are 'freaking out' as Lumentum deal rumors swirl

By Nora Redmond and Hannah Pedone

Investors are nervous that Marvell would have to pay a big premium - and wait a while for China to approve any deal

Marvell's stock was falling on Thursday.

Shares of Marvell Technology are sliding on Thursday as investors assess the financial implications of a possible deal to purchase optical-networking company Lumentum.

From a business standpoint, analysts see merit to a potential combination, which Bloomberg News reported on Wednesday is currently under discussion. Marvell and Lumentum both make optical technologies and together could capitalize on a hot market for lasers, analysts say.

But from a financial perspective, there could be some drawbacks. Lumentum (LITE) has a market valuation of $85 billion, while Marvell (MRVL) has a $194 billion market capitalization. But since Marvell only has $3.9 billion in cash on its balance sheet, the deal would likely need to be an all-stock deal, Wolfe research analyst Chris Caso pointed out.

An all-stock deal would be dilutive for investors in the near term, Stifel analyst Tore Svanberg told MarketWatch, meaning that initially the earnings potential of the deal wouldn't make up for the issuance of new shares to help fund it. However, he thinks returns would accrue for investors as cost savings materialize over the long run.

Marvell's stock sank 13.2% in Thursday's trading, while Lumentum's inched 0.6% higher. Bloomberg reported that a deal announcement could come next week.

Svanberg said that investors were "freaking out" because of the deal's potential size and the challenges that come with the fact that any merger would be subject to Chinese and U.S. regulatory approvals. The Chinese approval process can be lengthy.

If the deal materializes and goes through, it would be "one of the biggest deals in tech," he said.

Another issue is that the market assumes Marvell is going to have to pay a large premium to buy Lumentum, Seaport analyst Jay Goldberg told MarketWatch. That's reason alone to drive the stock down, he said.

Evercore ISI analyst Amit Daryanani wrote that his clients are wondering why Lumentum would agree to a sale given its commentary about the business being sold out through fiscal 2029, which ends in June of that year.

But Svanberg said there's reason to be excited about a possible deal.

"For investors that perhaps are not in the weeds of the technology, it's hard to understand the rationale," Svanberg said. But "this convergence of semiconductor and optical technology is very critical for AI networking."

Analysts at RBC Capital Markets, led by Srini Pajjuri, see further benefits to the potential tie-up.

"We think a potential combination makes strategic sense given the highly complementary product portfolios," adding that they expect the optical-interconnect market to grow at a faster rate than total data-center spending in the next two to three years.

But they also said that Lumentum is a key customer of Marvell's digital signal processors. If the deal closes, it could affect the chip company's current high market share of between 60% and 65% as alternative suppliers could be sought out.

Marvell Technology and Lumentum did not immediately respond to MarketWatch's requests for comments.

-Nora Redmond -Hannah Pedone

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10-29-26 1631ET