Marvell Technology (MRVL.US) is engaged in advanced discussions with Alphabet (GOOGL.US) to co-develop two new types of artificial intelligence chips. This development has spurred a more than 5% surge in Marvell's stock price, although neither company has provided an official comment on the reports. In contrast, shares of Alphabet's long-term partner Broadcom (AVGO.US) and its manufacturing partner Celestica (CLS.US) experienced slight declines.

The talks are centered on two new chips designed to significantly improve the operational efficiency of AI models. The first is a critical "Memory Processing Unit" (MPU), conceived to work alongside Alphabet's existing Tensor Processing Units (TPUs) to address memory bottlenecks in AI computations. The second is a next-generation TPU specifically optimized for handling AI inference workloads. The companies aim to finalize the MPU design and begin test production by 2027, indicating Alphabet's accelerated push to build a more cost-effective, vertically integrated hardware system to challenge NVIDIA's (NVDA.US) dominance in the GPU market.

Wells Fargo analyst Aaron Rakers noted in a recent report that if the deal with Alphabet is finalized, it would represent a "meaningful incremental positive" for Marvell. Rakers highlighted that Marvell's competitive edge in this bid stems largely from its recently launched Structera CXL solution. He wrote that the potential MPU order could be a demonstration of Marvell's Structera CXL technological prowess, a technology that substantially boosts computational efficiency in hyperscale data centers through rack-scale memory pooling. Marvell's custom XPU business already includes giants like Amazon.com (AMZN.US) and Microsoft (MSFT.US), and adding Alphabet would significantly enhance its customer diversification. Rakers maintained an "Overweight" rating and a $135 price target on Marvell.

Rakers added, "In our meetings, CEO Matt Murphy emphasized that the company's Structera CXL solution has already secured design wins with three hyperscale data centers. These solutions focus on using CXL pooling technology to integrate existing memory capacity within their computing infrastructure. At the OFC conference in mid-March, Marvell launched the Structera S 30260—a new 260-lane CXL switch enabling rack-scale memory pooling, designed to work with the company's Structera A near-memory accelerator, Structera X memory expansion controller, and Alaska PCIe/CXL retimer."

Despite the optimistic market sentiment, industry analysts also pointed out that Alphabet's move is more of a "supply diversification" strategy rather than a complete replacement of its existing partner. This news emerged just days after Broadcom secured a long-term design agreement with Alphabet extending to 2031. Bringing Marvell into the fold reflects Alphabet's targeted effort to reduce costs specifically in the "inference" phase, aiming to position its TPU as a more competitive general-purpose platform in the industry. According to estimates from Investors.com, as Alphabet plans to license its TPU IP to companies like Anthropic and Meta Platforms, Inc. (META.US), its TPU business could generate over $10 billion in high-margin licensing revenue by 2027, and Marvell is clearly positioning itself to capture a share of this rapidly growing market.