Marvell hands Google a $12.2bn share option in a custom-chip deal

Marvell Technology has agreed to give Google the right to buy up to $12.2 billion of its shares. In return, Google will buy its custom chips. The chipmaker set out the deal in a regulatory filing on Wednesday. Its stock jumped as much as 14 percent on the news.

The warrant lets Google buy 58,970,907 Marvell shares at $206.58 each, CNBC reported. That is worth about $12.2 billion if fully exercised. The right is not automatic. Nearly 1.4 million of the shares vest in the first year, according to Bloomberg. The rest come in tranches tied to every $500 million of chips Google buys.

The purchasing targets run through Marvell’s 2033 fiscal year. If Google hits them, the tie-up could bring Marvell roughly $120 billion in custom-chip sales over that period, Reuters reported. It could also make Google the company’s fifth-largest investor.

The mechanics tie the stake to spending. Google does not pay cash for the shares up front. Instead, it earns the right to buy them as it places orders, with each $500 million of chip purchases unlocking a further tranche of the warrant. That means the full $12.2 billion only materialises if Google buys a large volume of Marvell silicon over the life of the agreement.

What Marvell is building

The chips are not Google’s main processors, but the parts around them. Marvell said the expanded agreement covers products that “attach to the tensor processing unit ecosystem,” such as AI inference accelerators and controllers that handle storage and networking. Tensor processing units, or TPUs, are the in-house chips Google uses to build, train and run AI models.

Those custom chips sit at the centre of a wider shift. Google, along with Amazon, Meta and Microsoft, has been designing its own silicon to lean less on Nvidia. The chipmaker’s top AI accelerators sell for tens of thousands of dollars each. Demand has been strongest for chips suited to inference, the stage where a trained model is actually run.

Google’s TPUs are also sold to its cloud customers, which has turned them into a selling point for the wider business. As that demand has grown, so has Google’s appetite for the surrounding components, from accelerators to the controllers that move data between chips. Marvell’s role is to supply more of that hardware, and the warrant gives it a direct interest in how far Google’s custom-chip push goes.

Google has leaned on Broadcom for custom chips for most of the past decade, and expanded that partnership in April. Bringing in Marvell adds a second major supplier. William Kerwin, an analyst at Morningstar, told Reuters the deal was “a big win for Marvell.”

He read it, though, as “a growing pie at Google for new sources, rather than a competitive displacement of Broadcom.”

How the market reacted

The share moves told the story of who investors think won. Marvell rose about 8 percent, after climbing as much as 14 percent earlier in the day. Broadcom, the incumbent, fell around 5 percent as investors weighed a new rival for Google’s orders. Alphabet, Google’s parent, was little changed on the day.

The deal reflects how valuable Google’s chip business has become. Alphabet is expected to make about $3 billion from TPU-related infrastructure this year, and $25 billion in 2027. That estimate came from Citizens analyst Andrew Boone earlier this year, in a forecast cited by Bloomberg.

A recent reshuffle of Google’s AI leadership shifted power towards its cloud business, putting more weight on that infrastructure.

The circular-deal question

The structure fits a pattern that is starting to worry investors. A growing number of arrangements in the AI industry tie a chipmaker’s sales to its customer’s own stock or spending. Bloomberg said such “circular” deals have stoked fears of inflated valuations and an AI bubble.

This one lands days after Nvidia agreed to backstop up to $105 billion for a data centre that OpenAI is leasing in Ohio. It also echoes a deal from October. Then, AMD agreed to supply OpenAI with chips, and gave the ChatGPT maker an option to buy a stake of up to about 10 percent.

The investor Jeff Gundlach recently warned that turning AI chips into an asset class looks like a market top.

Marvell’s warrants are narrower than an open investment. They are specifically linked to Google, or its affiliates, buying certain custom Marvell chips, Bloomberg said. In effect, Google earns the right to a stake by spending, rather than paying cash for shares up front.

Google’s playbook

The move extends a strategy Google has been running for months, using its buying power to shape its chip supply and reduce its dependence on Nvidia. It has signed capacity and financing deals across the AI supply chain, and the Marvell agreement adds a chip partner with a direct financial stake in Google’s success.

Marvell first drew attention to a possible Google deal in April, when its shares rose on a report that the two were in talks over a TPU and a memory-processing unit, CNBC noted. The agreement disclosed on Wednesday is broader, and this time it comes with the numbers attached. Whether Google exercises the warrant will depend on how much silicon it ends up buying over the next seven years.

Marvell has framed the deal as a way to challenge Broadcom’s lead in custom chips. For Google, it is another lever over a supply chain it is trying to control.