Semiconductor chips are seen on a printed circuit board in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration

By Juby Babu and Max A. Cherney

SAN FRANCISCO, Dec 2 (Reuters) - Chipmaker Marvell Technology said on Tuesday it will buy semiconductor startup Celestial AI in a deal worth $3.25 billion and also forecast fourth-quarter revenue above Wall Street estimates.

Marvell's shares were up about 5% in extended trading.

The generative AI boom has sped up chipmakers' development process, as they rush to design the fastest, most energy-efficient equipment for advanced data centers.

The deal would allow Marvell to tap into the startup's work on photonics, which uses light rather than electrical signals to create connections between AI chips and memory chips, an area where it competes with Broadcom and the world's most valuable company Nvidia.

Under the terms of the deal, Celestial AI will receive $1 billion in cash and 27.2 million shares of Marvell common stock, having a value of $2.25 billion.

Marvell said it expects to see meaningful revenue contributions from Celestial AI beginning in the second half of fiscal 2028, reaching $500 million in annualized run rate in the fourth quarter of fiscal 2028 and doubling to a run rate of $1 billion by the fourth quarter of fiscal 2029.

The deal is expected to close in the first quarter of calendar year 2026.

Related to the Celestial acquisition, Marvell issued a warrant to Amazon for its stock. The agreement allows Amazon to buy Marvell shares based on the cloud computing giant’s purchase of photonic fabric products through the end of 2030.

Amazon can acquire up to $90 million worth of Marvell stock, or roughly 1 million shares with an exercise price of about $87.

Marvell projected revenue of around $2.20 billion, plus or minus 5%, for the fourth quarter, compared with analysts' average estimate of $2.18 billion, according to data compiled by LSEG.

Revenue for the third quarter ended November 1 grew 36.8% to $2.07 billion, in line with analysts' estimates.

Marvell's stock is down more than 15% this year amid growing competition in the custom AI chip and networking market and Wall Street's concerns of an AI bubble.

(Reporting by Juby Babu in Mexico City and Max A. Cherney in San Francisco; Editing by Alan Barona and Andrea Ricci )