Google, the search and cloud computing business owned by Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), expanded its custom chip work this summer. On July 29, it signed an agreement with Marvell Technology (NASDAQ:MRVL) covering artificial intelligence (AI) inference accelerators, storage controllers, and other silicon built around Google’s in-house TPU chips.
The unusual part surfaced in a securities filing this week. Alongside the agreement, Marvell handed Google a warrant covering 58,970,907 of its shares (roughly 7% of the company) at a fixed price of $206.58. Marvell shares jumped about 10% Wednesday after the disclosure, closing near $237.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Put another way, Google isn’t just buying chips from a supplier. It negotiated the right to profit from its supplier’s stock while doing so. And the package would cost about $12.2 billion to exercise in full, while obligating Google to buy nothing at all.
Image source: Alphabet.
The warrant pays Google to be a customer
Most of the warrant’s shares (57,610,040 of them) vest as Google’s purchases accumulate — another block of stock with each $500 million spent on the covered products. A smaller slice of 1,360,867 shares vests on a schedule over the first year, purchases or not.
Those purchases are discretionary, according to the filing. Google controls the pace entirely, and nothing obligates it to spend a dollar.
The structure is unusually favorable. A big buyer can always negotiate volume discounts, but a discount ends at the price of the chips. The warrant converts Google’s spending into an asset. Every $500 million of purchases hands Google another block of Marvell stock at $206.58 per share, and with the stock near $243, the full package is already worth…
..
