A Nervous Week in the Semiconductor Market | Future Intelligence #34
The past week put the AI sector’s nerves to the test, but above all it shifted one thing: attention is moving from the performance of chips themselves to what connects and powers them, and how quickly they become obsolete. It also became clear that bargaining power in infrastructure is shifting from those who own the hardware to those who rent it. Marvell is paying $115 billion in stock for Lumentum, effectively buying optics as the new core of data centers. Microsoft did not renew its capacity lease from Oracle because it runs on an older generation of chips — Oracle’s share price fell to $109.21, a new 52-week low. And at Nvidia’s request, TSMC is preparing to enter 3D DRAM.
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Key points
Why Marvell paid $115 billion for Lumentum and what it says about the role of optics in AI data centers
What the end of Microsoft’s capacity lease from Oracle means and why it’s about more than price
How quickly graphics chips age compared with the depreciation schedules cloud companies have set
Why TSMC is venturing into 3D memory at Nvidia’s request and what it risks by doing so
A small biotech’s milestone in Huntington’s disease treatment and three stories of the week, from SpaceX to Wyoming
Marvell buys Lumentum for $115 billion: optics is the new core of AI data centers
Marvell and Lumentum announced a definitive merger agreement on November 2. The all-stock transaction implies an enterprise value of $115 billion, with Lumentum shareholders receiving 4,500 Marvell shares for each of their shares — roughly $1,132 per share and a 23.9% premium to the October 28 closing price, the last day before speculation about the deal began.
After closing, current Marvell shareholders will own approximately 67% of the combined company, with Lumentum shareholders holding the remaining third. The market delivered its verdict immediately: on Monday, November 2, Marvell’s share price closed down 12.7% at $171.41; on Thursday, November 5, it fell another 16.4% to $133.55. The stock is down 32.0% for the week.
Why AI clusters break down at the speed of light
The reason for the acquisition comes down to physics. At transmission speeds of 1.6 terabits per second, copper stops working over distances of a meter — the signal breaks down and power consumption rises. According to Jensen Huang, a modern AI accelerator needs six optical transceivers, each consuming around 30 watts. With hundreds of thousands of GPUs, that adds up to a dedicated power plant just for connectivity.
The answer is co-packaged optics (CPO): the optical module moves from the front panel to sit directly beside the chip, in the same package. The electrical path is shortened, reducing power consumption per transmitted bit. Nvidia $NVDA and Broadcom $AVGO are currently furthest along, with CPO relying in part on TSMC’s COUPE photonics module.
Every such system, however, needs a light source — a laser. And that is precisely where supply is constrained: indium phosphide lasers, continuous-wave sources for CPO, and modulated EML chips. So Marvell is not buying another design team, but physical manufacturing capacity in a material that cannot be scaled up with a single foundry tapeout.
The numbers Lumentum brings to the deal
Lumentum’s optical portfolio surged last year. Revenue for the June quarter reached $1,006 million, up 109% year over year, and guidance for the following quarter was $1.225 billion to $1.275 billion. For fiscal 2026 as a whole, revenue grew 83%, and the OCS optical switching platform surpassed a quarterly run rate of $100 million.
The shift in the mix matters more than the growth itself: 200 Gb/s-per-lane lasers now account for more than a quarter of EML revenue. That is exactly the component needed for next-generation 1.6T transceivers. Nvidia had already secured this capacity earlier this year with a $2 billion investment in Lumentum and another $2 billion in Coherent $COHR, supplemented by purchase commitments.
Management at both companies frames the deal around a $550 billion addressable market in AI connectivity. According to Lumentum CEO Michael Hurlston, the combination creates a company “uniquely positioned” for this opportunity. Marvell brings its own silicon, switching, and electrical connectivity; Lumentum brings the light — the whole chain, from signal to photon, under one roof.
The ticket price and its bill
The deal is paid for entirely in stock, and that is the heart of the problem. It implies roughly 50% dilution in the share count, offset by more than $1 billion in annual cost synergies, mainly in cost of goods sold. The companies promise accretion to non-GAAP earnings per share only in the first year after closing.
Closing is not expected until the first half of 2028, including approval in China. Investors therefore face more than a year of bearing the dilution in anticipation, with no additional revenue yet. Lumentum shares $LITE are trading roughly 8% below the implied offer value — a spread that reflects the length and risk of the process.
Analysts reacted quickly. TD Cowen downgraded Marvell to Hold and cut its price target from $350 to $175, estimating single-digit percentage dilution to earnings per share in 2028 and warning that the acquisition comes near the top of the optical mini-cycle.
Bank of America also downgraded the stock; Vivek Arya noted that no major acquisition had been mentioned at the recent analyst day.
Because the transaction is stock-based, a decline in Marvell’s share price $MRVL also reduces the offer’s real value to the other side — and thus increases the likelihood that the deal will need to be renegotiated.
The valuation dispute comes down to one number: bottom-up consensus puts the optical transceiver market at around $100 billion in 2027, while TD Cowen uses a substantially lower estimate.
Microsoft disconnects from Oracle: GPUs are aging faster than their depreciation schedules
Bloomberg confirmed on Friday, November 6, that Microsoft is gradually switching off computing capacity leased from Oracle and did not renew the 2023 contract. The reason is neither price nor volume: the leased servers run on an older generation of Nvidia chips that no longer meet Microsoft’s specifications. Oracle shares fell to $109.21 on Friday, a new 52-week low.