Analysts downgrade Marvell and slash price targets over Lumentum deal

 TD Cowen and Bank of America both downgraded Marvell Technology on Tuesday, citing concerns about the chipmaker’s all-stock acquisition of Lumentum.

TD Cowen cut Marvell to Hold from Buy and slashed its price target to $175 from $350. Analyst Sean O’Loughlin expects the deal to dilute EPS by a mid-single-digit percentage in 2028, its first year, and worries it may come at or near the peak of an optical mini-cycle.

“Our downgrade is driven primarily by our negative view of the transaction itself in terms of structure and timing, rather than the quality of the asset Marvell is acquiring,” O’Loughlin wrote.

He said Lumentum is likely to become a “crown jewel” within Marvell’s portfolio. However, he noted that bottom-up consensus implies a roughly $100 billion optical transceiver market in 2027, compared with TD Cowen’s $47 billion forecast. If the cycle turns, Lumentum’s operating leverage could worsen the dilution.

Bank of America downgraded Marvell to Neutral from Buy and cut its price target to $225 from $400. Analyst Vivek Arya cited a potential extended stock overhang from the deal, along with a 19% drop in the SOX index over the past month.

BofA said the deal has strategic merit, creating a broader electrical-to-optical connectivity platform. 

However, it flagged a lengthy regulatory process, with closing expected in the first half of 2028, limited EPS accretion as $1 billion in cost cuts falls short of offsetting about 50% share dilution, and potential customer conflicts.

“There was no mention of any large M&A in MRVL’s recent analyst day, so the news comes as a considerable surprise,” Arya said. “We question the impact on LITE’s valuation once its laser shortages are inevitably resolved.”