U.S. chipmaker Marvell Technology is reportedly close to acquiring chip startup Celestial AI in a multi-billion-dollar deal.

The potential deal was first reported by The Information, which cited people close to the matter. According to the report, the total deal price (including potential earnings from product milestones) could be higher than $5 billion.

The purchase would see Marvell build out its data center capacity, adding Celestial’s photonic interconnects to its technology portfolio.

Photonics is a growing area of interest for hardware developers, with light being used instead of electrical signals to enhance communication between AI compute and memory chips. The technology is designed to address typical bottlenecks by delivering high-bandwidth at low-latency, meaning it can ferry data between chips more rapidly compared to traditional hardware.

The deal would also look to support Celestial AI’s wider expansion plans.

The Santa Clara, California-based firm, whose board includes Intel CEO Lip-Bu Tan, was founded back in 2020. It raised $250 million in venture capital from backers including AMD Ventures, BlackRock, and Koch Disruptive Technologies, bringing its total capital raised to $515 million.

Celestial said at the time the funding would be used to accelerate commercial deployment of its photonic technology, including its Photonic Fabric offering, as well as scaling its manufacturing supply chain, and deepen industry partnerships as businesses look to enhance AI infrastructure.

Instead of being just another co-packaged optics (CPO) offering, Celestial’s Photonic Fabric platform is a full-stack technology capable, which the firm claims can transmit data between data center chips with up to a 25x increase in off-package bandwidth compared to rival hardware, all while consuming substantially less power.

Speaking following its March funding round, Celestial CEO David Lazovsky said the company’s development of photonics comes as the development of complex reasoning models and agentic AI sparks greater AI infrastructure demands.

As a result, companies are chasing faster and more efficient processing speeds to accommodate vast data needs without jeopardising productivity.

“Celestial AI’s Photonic Fabric is the only technology platform capable of meeting these critical demands while setting new standards for bandwidth, latency, energy efficiency, and total cost of ownership,” he added.

Celestial was one of a handful of AI hardware developers subject to AI-generated “executive summaries” SDxCentral unearthed following an inadvertent leak from xAI chatbot Grok.

Instead of being an acquisition, Grok suggested the startup would aim for an IPO by 2027 – an approach disputed by the firm.

A Celestial spokesperson told SDxCentral that information generated by Grok was being “either out of date or inaccurate” – with the AI even recommending users contact Celestial staff who didn’t exist.