Micron is the Real Loser in Lumentum Deal Which Assumes “Market Will Collapse in Two to Three Years”

Key Takeaways

• Marvell agreed to buy Lumentum in an all-stock deal valued at $115 billion, and Lumentum shares fell 12% on Monday.

• Citrini Research’s Jukan reads the sale as a sign that Lumentum’s management expects the AI boom to end within two to three years.

• If he’s right, Micron has the most to lose: analysts expect its earnings to more than double this fiscal year, three years after it lost money.

• Micron trades at about 5x forward earnings, but that’s cheap only if earnings stay near their peak.

Marvell Technology (MRVL:NASDAQ) agreed on Monday to buy Lumentum (LITE:NASDAQ) in an all-stock deal that values the optical-parts maker at $115 billion. Lumentum’s shares fell 12% on the news, and Marvell’s fell 5%.

That’s an odd reaction for a company being bought. Usually somebody’s happy!

Citrini Research’s Jukan had a blunt explanation for it on X: “The only way to interpret Lumentum’s management accepting this deal is that they have no faith in the current AI cycle. They think the market will collapse in two to three years.”

If he’s right, Lumentum isn’t the stock I’d worry about. Micron Technology (MU:NASDAQ) is.

The price keeps shrinking

Marvell is paying 4.5 of its shares for each Lumentum share, which the two companies put at $1,132 a share, a 24% premium to Lumentum’s price on Oct. 28, the last day before word of the talks got out.

But Marvell’s own shares slid as soon as the talks came out, and they’re down about 26% since Oct. 28. At Monday’s price, those 4.5 shares are worth about $835, less than Lumentum closed at on Friday. And the deal isn’t expected to close until the first half of 2028.

There’s a generous reading of that. Lumentum’s holders will own about a third of the combined company, and CEO Michael Hurlston said in the deal’s announcement that “joining Marvell creates a company uniquely positioned to capitalize on a market opportunity of $550 billion.”

The less generous one is Jukan’s. A management team that expected years more of this boom could have held out for a better price, or just not sold at all.

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Memory has the farthest to fall

If the AI cycle turns in two or three years, every stock priced on today’s AI spending feels it. But none has more of its earnings riding on that spending than Micron.

Memory prices soar when supply is tight and crash when it isn’t, and Micron’s earnings go with them. Its revenue went from $15.5 billion in fiscal 2023 to $133.2 billion in the year that ended in August, and analysts expect $275.5 billion this year.

Its earnings swung even harder, from a loss in fiscal 2023 to $75.52 a share last year, and analysts expect them to more than double again:

Those estimates have Micron still growing through August 2028, the end of its fiscal 2028. That’s inside Jukan’s two-to-three-year window.

Cheap only if the boom lasts

The market isn’t blind to this. Micron trades at about 5x forward earnings, the kind of multiple investors give a business whose earnings they don’t trust to last.

But 5x only holds if those earnings show up. At about $879 a share, Micron trades at about 12x what it earned last fiscal year, and at more than 100x its fiscal 2025 earnings of $8.29 a share.

Lumentum’s holders, at least, are swapping into a bigger company that expects more than $1 billion a year of cost savings from the deal. Micron’s holders own what I’m pretty sure is the purest bet in the market on AI spending staying this high.

Bottom line: if Lumentum’s own management is betting the boom has two or three years left, I’d want Micron at a lot less than 5x peak-cycle earnings.

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