Broadcom Inc. (AVGO) and Marvell Technology, Inc. (MRVL) are two prominent players in the semiconductor industry. AVGO designs, develops, and supplies a range of analog and digital semiconductor connectivity solutions and infrastructure software solutions. Its products are used in data center networking, home connectivity, broadband access, telecommunications equipment, smartphones, and base stations. Bermuda-based MRVL is a semiconductor manufacturer that offers a security and networking platform, secure data processing, networking, and storage solutions. It designs, develops, and sells analog, mixed-signal, digital signal processing, embedded and standalone integrated circuits, and a portfolio of Ethernet solutions.
Despite growing supply chain disruptions worldwide, strong demand for semiconductor chips from various industries has allowed the industry to witness a 32.4% year-over-year sales growth in February 2022. Companies’ efforts to manufacture advanced chips upon the growing proliferation of 5G, AI, and ML, along with considerable corporate investments and government support to ramp up production, will likely ease the shortage in the near term, driving the industry’s growth. The global semiconductor market is expected to grow at a 6.6% CAGR to reach $808.50 billion by 2030. So, both AVGO and MRVL should benefit.
While MRVL has lost 3.7% over the past month, AVGO has gained 0.5%. AVGO is a clear winner with 17.9% gains over the past six months versus MRVL’s 4.3% loss. But which of these stocks is a better pick now? Let’s find out.
Latest Developments
On March 9, 2022, AVGO unveiled its 100G/lane optical PAM-4 DSP PHY with an integrated trans-impedance amplifier (TIA) and the BCM87412, a high-swing laser driver optimized for 400G DR4/FR4 module applications. Built on AVGO’s proven 112G PAM-4 DSP platform, this highly integrated DSP PHY provides the highest level of CMOS integration and superior performance with lower power consumption, enabling sub-7W 400G DR4/FR4 modules to drive the industry transition to energy-efficient 400G Ethernet. This should help AVGO gain more market reach in the coming months.
(Note that AVGO is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.)
On March 7, 2022, MRVL and Hisense Group, a Chinese multinational white goods and electronics manufacturer, announced a production-ready 400G QSFP-DD OpenZR+ optical module based on the Marvell Deneb Coherent DSP (CDSP). As the demand for OpenZR+ coherent pluggable rises to support IP-over-DWDM (IPoDWDM) used to eliminate separate full-function optical transport boxes, the Hisense Broadband 400G QSFP-DD small form-factor pluggable module will deliver high performance and scalability required to enable cost-effective, simplified, 5G and cloud data center services. This product should witness high demand in the coming months.
Recent Financial Results
AVGO’s net revenue for its fiscal 2022 first quarter ended January 31, 2022, increased 15.8% year-over-year to $7.71 billion. The company’s non-GAAP gross profit came in at $5.82 billion for the quarter, up 19.4% from the prior-year period. Its non-GAAP operating income came in at $4.66 billion, indicating a 23.2% rise from the prior-year period. While its non-GAAP net income increased 25.8% year-over-year to $3.74 billion, its non-GAAP EPS grew 26.9% to $8.39. As of January 31, 2022, the company had $10.22 billion in cash and cash equivalents.
For its fiscal 2022 fourth quarter ended January 29, 2022, MRVL’s net revenue increased 68.3% year-over-year to $1.34 billion. The company’s non-GAAP gross profit came in at $876.89 million, up 72.1% from the prior-year period. Its operating income came in at $34.65 million, compared to a loss of $1.74 million in the year-ago period. Its non-GAAP net income increased 113.7% year-over-year to $428.69 million. MRVL’s non-GAAP EPS came in at $0.50, indicating a 72.4% year-over-year improvement. The company had $613.53 million in cash and cash items as of January 29, 2022.
Past and Expected Financial Performance
Over the past three years, AVGO’s revenue, EBITDA, and levered free cash flow have increased at CAGRs of 10.8%, 16.7%, and 6.8%, respectively.
AVGO’s EPS is expected to grow 26.5% year-over-year in fiscal 2022, ending October 31, 2022, and 8.9% in fiscal 2022. Its revenue is expected to grow 16.2% in fiscal 2022 and 6.1% in fiscal 2023. Analysts expect the company’s EPS to grow at a 14.7% rate per annum over the next five years.
MRVL’s revenue, EBITDA, and levered free cash flow have increased at CAGRs of 15.9%, 19%, and 16.5%, respectively, over the past three years.
Analysts expect MRVL’s EPS to improve 45.9% year-over-year in fiscal 2023, ending January 31, 2023, and 26.2% in fiscal 2023. Its revenue is expected to grow 36.7% year-over-year in fiscal 2023 and 18.3% in fiscal 2024. Analysts expect the company’s EPS to grow at a 42.1% rate per annum over the next five years.
Valuation
In terms of non-GAAP P/E, MRVL is currently trading at 26.53x, 62.3% higher than AVGO’s 16.35x. In terms of forward EV/Sales, AVGO’s 8.40x compares with MRVL’s 9.46x.
Profitability
AVGO’s trailing-12-month revenue is almost 6.4 times MRVL’s. AVGO is also more profitable, with a 27.5% net income margin versus MRVL’s negative value.
Furthermore, AVGO’s ROE, ROA, and ROTC are 33.3%, 8.2%, and 9.6%, compared to MRVL’s respective negative values.
POWR Ratings
While AVGO has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, MRVL has an overall D grade, equating to Sell. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
AVGO has a B grade for Quality, consistent with its higher-than-industry profitability ratios. AVGO’s trailing-12-month ROE of 32.1% is 334% higher than the industry average of 7.4%. MRVL’s D grade for Quality is in sync with its negative ROE.
AVGO has a C grade for Value, reflecting its slightly higher-than-industry valuation ratios. AVGO’s 13.52x forward EV/EBITDA is 9.8% higher than the 12.32x industry average. MRVL’s D grade for Value is in sync with its overvaluations. MRVL has a 22.83x forward EV/EBITDA, 85.3% higher than the industry average of 12.32x.
Of the 96 stocks in the A-rated Semiconductor & Wireless Chip industry, AVGO is ranked #5, while MRVL is ranked #87.
Beyond what we have stated above, our POWR Ratings system has also rated AVGO and MRVL for Stability, Momentum, Sentiment, and Growth. Get all AVGO ratings here. Also, click here to see the additional POWR Ratings for MRVL.
The Winner
Despite the recent tech sell-off, strong demand and increasing investments in the chip industry should help fundamentally sound stocks in this space to rebound. Although AVGO and MRVL are expected to benefit substantially in the coming months, relatively lower valuation and higher profitability make AVGO a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.
AVGO shares were trading at $585.61 per share on Tuesday afternoon, up $5.00 (+0.86%). Year-to-date, AVGO has declined -11.40%, versus a -7.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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