The global semiconductor industry sales increased 24% from the prior year in November 2021, driven by the heightened demand from various industries and favorable government policies, and huge corporate funds addressing the growing chip shortage. Amid the accelerating deployment of 5G technology worldwide, companies are making impressive breakthroughs in the chip-making process that increases bandwidth, provides lower latency, and delivers efficient performance using low power. This, combined with the possibility of the passage of the CHIPS Act in the near term, guarantees the industry’s bright long-term growth prospects.
Growing investor optimism in this space is evident in the First Trust Nasdaq Semiconductor ETF (FTXL) 2.1% gains over the past month, which surpassed the SPDR S&P 500 Trust ETF’s (SPY) 2% returns. The global semiconductor chips market is expected to grow at 7.8% CAGR and reach $553.60 billion by 2026. So, both Micron Technology, Inc. (MU) and Marvell Technology, Inc. (MRVL), two prominent players in the semiconductor chip industry, are expected to benefit substantially in 2022.
MU designs, manufactures, and sells memory and storage products worldwide. It sells DRAMs, SRAMs, flash memory, semiconductor components, and memory modules to various end markets. In comparison, MRVL 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 ICs, and a portfolio of Ethernet solutions.
In the last three months, MU experienced 36.8% gains and MRVL gained 34.2%. But which of these stocks is a better pick now? Let us find out.
On December 1, MU expanded its business relationship with United Microelectronics Corporation (UMC), which helps MU to secure supplies for automotive, mobile, and critical customers into the future and increase collaboration across the semiconductor industry. This expansion will also help MU deliver its industry-leading memory and storage solutions to its customers globally.
On December 7, 2021, MRVL announced its collaboration with OE Solutions, a leading supplier of optoelectronic transceiver solutions for broadband wireless and wireline markets, to deliver the industry’s first production-ready 100G QSFP-DD optical modules optimized for 5G backhaul and Metro Access applications. The OE Solutions 100G QSFP-DD Coherent Transceiver with the Marvell Deneb Coherent DSP will enable the transition of 10G to 100G coherent solutions, delivering unprecedented performance and scalability. The companies are looking forward to gaining widespread recognition and benefit from the accelerating deployment of 5G infrastructure worldwide.
Recent Financial Results
MU’s non-GAAP revenue for its fiscal 2022 first quarter, ended December 1, 2021, increased 33.2% year-over-year to $7.69 billion. The company’s non-GAAP gross profit came in at $3.62 billion, representing a 102.7% rise from the prior-year period. Its non-GAAP operating income came in at $2.73 billion, up 180.1% from its year-ago period. While its non-GAAP net income increased 175.5% year-over-year to $2.47 billion, its non-GAAP EPS increased 176.9% to $2.16. As of December 1, 2021, the company had $8.68 billion in cash and cash equivalents.
For its fiscal 2022 third quarter, ended October 30, 2021, MRVL’s net revenues increased 61.5% year-over-year to $1.21 billion. The company’s non-GAAP gross profit came in at $788.35 million, up 66.7% from the prior-year period. Its non-GAAP operating income came in at $417.82 million, representing a 68.9% rise from the year-ago period. Its non-GAAP net income increased 116.4% year-over-year to $364.32 million. MRVL’s non-GAAP EPS came in at $0.43, indicating a 72% year-over-year improvement. The company had $523.50 million in cash and cash equivalents as of October 30, 2021.
Past and Expected Financial Performance
MU’s total assets grew at a CAGR of 11.2% over the past three years. Analysts expect MU’s EPS to increase 47.4% year-over-year for the fiscal year 2022, ending August 31, 2022, and 28.9% in 2023. Its revenue is expected to grow 16.3% year-over-year for fiscal 2022 and 19.7% in 2023. The company’s EPS is expected to grow at a 23.8% rate per annum over the next five years.
In comparison, MRVL’s total assets increased at a CAGR of 29.1% over the past three years. MRVL’s EPS is expected to grow 68.5% year-over-year in the fiscal year 2022, ending January 31, 2022, and 41.3% in 2022. The company’s revenue is expected to increase 49.7% year-over-year in the fiscal year 2022 and 31.9% in 2023. Analysts expect the company’s EPS to grow at a rate of 42.8% per annum over the next five years.
In terms of non-GAAP forward PEG, MRVL is currently trading at 1.39x, 183.7% higher than MU’s 0.49x. In terms of forward EV/Sales, MU’s 3.17x compares favorably with MRVL’s 16.92x.
MU’s trailing-12-month revenue is almost 7.6 times MRVL’s. MU is also profitable, with a 24.9% net income margin versus ZOM’s negative value.
Furthermore, MU’s ROE, ROA, and ROTC of 17.2%, 9.3%, and 10.7%, respectively, compare favorably with MRVL’s negative values.
While MU 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.
MU has a B grade for Quality, consistent with its higher-than-industry profitability ratios. MU’s 29% trailing-12-month EBIT margin is 216.9% higher than the 9.2% industry average. MRVL’s D grade is in sync with its negative EBIT margin.
MU has a B grade for Value, in sync with its lower-than-industry valuations. MU has a 5.60 forward EV/EBITDA ratio, 65.8% lower than the 16.36x industry average. MRVL’s D grade for Value reflects its overvaluation. MRVL’s 44.05 forward EV/EBITDA multiple is 169.2% higher than the industry average of 16.36x.
Of 99 stocks in the A-rated Semiconductor & Wireless Chip industry, MU is ranked #6, while MRVL is ranked #89.
Beyond what we have stated above, our POWR Ratings system has also rated MU and MRVL for Sentiment, Momentum, Stability, and Growth. Get all MRVL ratings here. Also, click here to see the additional POWR Ratings for MU.
Rising government and corporate investments made in the semiconductor industry should help ease the ongoing chip shortage and ramp up production by the end of this year. Both MU and MRVL are well-positioned to grow substantially. However, higher profitability and lower valuations make MU a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.
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MU shares were trading at $94.80 per share on Friday afternoon, down $0.85 (-0.89%). Year-to-date, MU has gained 1.77%, versus a -1.64% 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. More...
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