Marvell Jumps on Google's $120B Custom Chip Deal

Shares of Marvell Technology (MRVL) jumped about 10% on Wednesday after the company announced an expanded custom chip partnership with Google, a subsidiary of Alphabet (GOOG, GOOGL). The deal includes a warrant giving Google the right to buy nearly 59 million Marvell shares, worth about $12.2 billion at the exercise price of $206.58 per share.

The warrant's vesting schedule is the key detail. Most shares vest only as Google purchases custom chips from Marvell, with one installment vesting for every $500 million in revenue. There are 240 installments, totaling $120 billion in potential purchases. The measuring period runs from August 1, 2026, to January 29, 2033.

The revenue must come from specific custom semiconductor products, including AI inference accelerators, storage controllers, and network interface controllers, all tied to Google's TPU ecosystem. This means only spending on these custom chips counts toward vesting.

Marvell's data center revenue is already accelerating, reaching $1.8 billion in the latest quarter, up 27% year over year. The company's total revenue was a record $2.4 billion, with guidance for further growth. However, the $120 billion potential is more than double Marvell's current annual revenue, highlighting the scale of the opportunity.

Google has not committed to any specific purchase volume, and the spending is described as discretionary. The warrant simply makes each dollar of spending more rewarding for Google, as it earns equity in Marvell at a fixed price. This structure suggests Google expects significant purchases, but the actual amount remains uncertain.

This partnership could transform Marvell's business if Google follows through on the $120 billion in purchases. Full vesting would mean Marvell generates over $18 billion annually from Google alone, more than double its current total revenue. This would solidify Marvell's position as a key supplier in the AI infrastructure boom.

The deal also validates Marvell's custom chip strategy, which focuses on designing specialized processors for hyperscale customers like Google. As AI workloads grow, demand for custom accelerators and networking chips is expected to surge, and this partnership positions Marvell to capture a significant share.

However, the discretionary nature of Google's purchases introduces risk. If Google slows spending or shifts to other suppliers, Marvell's growth could stall. The stock's 10% jump reflects optimism, but investors should consider that the $120 billion is a ceiling, not a guarantee.

For Alphabet, the deal strengthens its AI infrastructure capabilities without a binding commitment, making it a low-risk strategic move. The warrant provides upside for Google if Marvell's stock rises, but it doesn't force any purchases.

Overall, this news is a positive signal for Marvell's long-term prospects, but the lack of a firm commitment means investors should watch for concrete purchase orders and revenue recognition from Google in the coming quarters.