Technology stock

Why Marvell Technology Stock May Shoot Higher

Marvell Technology Groupit is ( LRVL 3.85% ) the results of the second quarter of fiscal 2022 turned out better than expected thanks to impressive growth in all its business segments. The data centers, carrier infrastructure and enterprise networking businesses particularly stood out, which was not surprising as Marvell benefits from a set of catalysts in these areas, such as the deployment of 5G networks, the need for faster networking solutions, and an increase in data center storage.

Marvell’s advice was also robust, indicating that they have more to offer.

MRVL data by YCharts

Let’s take a close look at Marvell’s performance last quarter and see why this tech stock is set for further gains.

Marvell Technology Group’s second quarter results point to better times

Marvell’s second-quarter revenue rose 48% year-over-year to $1.08 billion, while adjusted net income rose to $0.34 per share from 0 $.21 a year ago. The company’s adjusted gross margin rose 150 basis points year over year to 64.8% in the quarter, helping Marvell comfortably beat the consensus estimate of $0.31 per share. Additionally, robust demand in all of Marvell’s end markets helped it surpass the midpoint of its revenue forecast and beat Wall Street’s estimate of $1.07 billion.

Marvell expects revenue of $1.14 billion and adjusted earnings of $0.38 per share this quarter in the middle of its range. The company generated $0.25 per share in adjusted earnings on revenue of $750 million in the prior year period. Substantial increases in management guidance across the board indicate that Marvell is on track to deliver exceptional growth once again.

Man pointing up on a red line going up.

Image source: Getty Images.

The acquisition of Inphi plays a vital role in Marvell’s growth prospects. This is especially true in the data center segment, which saw revenue growth of 62% year-over-year to $434 million and produced 40% of revenue. The chipmaker had spent $10 billion to acquire high-speed networking chip designer Inphi earlier this year to boost its presence in the data center, 5G and automotive markets.

When Marvell announced the acquisition of Inphi in October last year, it pointed out that the acquisition would expand its addressable market to $23 billion. Additionally, Marvell said Inphi will accelerate its addressable market growth at an annual rate of 12%. Marvell is currently experiencing tremendous momentum in the data center industry, and the good part is that it expects the segment to pick up the pace through 2025.

Management points out that the company has won “significant design victories” in the data center industry with several cloud customers. It also expects to gain more market share in this space in the future. All of this is not surprising as Marvell is looking for fast-growing opportunities in the data center market, such as data processing units and data center interconnect.

The DCI market, for example, is expected to grow at an annual growth rate of over 12% through 2026, according to a third-party estimate. The DPU market, on the other hand, is another fast-growing niche that could become important in the long run. And given that Marvell’s design gains could lead to greater market share in the cloud computing space, growth in its largest end market could improve significantly in the long run.

More reasons to buy

The transport infrastructure market is another important growth engine for Marvell. It accounted for 18% of Marvell’s total revenue last quarter, posting 39% year-over-year revenue growth. Management noted that the segment was benefiting from “ongoing 5G deployments as well as product ramps at Samsung and nokia“Like data centers, the carrier sector is also on track for improvement, as Marvell has secured new design contracts to supply custom base station chips to three major telecom customers.

With 5G networks rolling out worldwide, Marvell’s telecom operator business is expected to start on gas in the second half of the year. And, with demand for 5G infrastructure growing at 95% annually, Marvell’s carrier infrastructure business could enjoy a long period of strong growth.

Thanks to all these tailwinds, analysts are optimistic about Marvell’s prospects. They expect the company’s earnings to grow at an annual rate of more than 36% over the next five years and remain a top growth stock that could soar.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.