Micron Technology, Inc. (MU) and Marvell Technology Group Ltd. (MRVL) are two prominent players in the global semiconductor industry. MU manufactures and markets a portfolio of memory technologies for solid-state drives, modules, multi-chip packages, and other system solutions. On the other hand, 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.

Despite the supply shortage, the global semiconductor industry witnessed a 29% year-over-year sales growth in July 2021. Rising government and corporate investments in the semiconductor industry should gradually eliminate the shortage and help the producers meet the skyrocketing demand. Malaysia, home to suppliers and factories serving semiconductor makers, has started its production with almost 80% capacity in September.

Investor interest in the industry is evident from the SPDR S&P Semiconductor ETF’s (XSD) 5.1% gains over the past month versus the SPDR S&P 500 Trust ETF’s (SPY) marginal returns. The global semiconductor market is expected to grow at a 7.7% CAGR to $778 billion by 2026. So, both MU and MRVL should benefit.  In terms of their past three months’ performance, MRVL is a winner with 4.3% gains versus MU’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On August 3, 2021, MU announced the immediate availability of Crucial P5 Plus PCIe SSDs to expand its award-winning NVMe SSD portfolio to offer consumers high-performance internal Gen4 storage options. By leveraging MU’s 176-layer NAND, these SSDs enable lower power, higher speed, and denser storage solutions. Furthermore, by incorporating MU’s advanced 176L 3D TLC NAND and innovative controller technology that allows 66% faster sequential write speeds, these SSDs should be able to capitalize on the growing demand for high-performance storage solutions, owing to rising data-intensive workloads.

MRVL announced a definitive agreement to acquire Innovium, Inc., a leading provider of networking solutions for cloud and edge data centers, on August 3, 2021. Innovium’s TERALYNXTM switching architecture delivers the ultra-low latency, optimized power, high performance, and innovative telemetry that are critical in today’s cloud-scale data centers. MRVL expects this acquisition to broaden its portfolio of silicon solutions targeting cloud data centers, complement its extensive Ethernet offerings and generate an additional $150 million in incremental revenue next fiscal year.

Recent Financial Results

MU’s non-GAAP revenue for its fiscal fourth quarter ended September 2, 2021, increased 36.6% year-over-year to $8.27 billion. The company’s non-GAAP gross profit came in at $3.96 billion, indicating an 87.8% rise from the prior-year period. Its non-GAAP operating income came in at $3.07 billion, up 136% from the year-ago period. While its non-GAAP net income increased 126% year-over-year to $2.78 billion, its non-GAAP EPS increased 124.1% to $2.42. As of September 2, 2021, the company had cash, cash equivalents, and restricted cash of $7.83 billion.

For its fiscal second quarter ended July 31, 2021, MRVL’s net revenue increased 29.3% year-over-year to $1.08 billion. The company’s non-GAAP gross profit came in at $697.59 million, up 30.3% from the prior-year period. Its non-GAAP operating income came in at $331.191 million, representing a 44.5% year-over-year improvement. MRVL’s non-GAAP net income of $283.95 million for the quarter represents a 40.7% rise from the prior-year period. Its non-GAAP EPS increased 17.2% year-over-year to $0.34. The company had cash and cash equivalents of $559.62 million as of July 31, 2021.

Past and Expected Financial Performance

MU’s total assets have grown at a CAGR of 10.7% over the past three years. Analysts expect MU’s EPS to increase 48% in the current year and 24.7% next year. Its revenue is expected to increase 15.7% year-over-year in the current year and 15.5% next year. Analysts expect the stock’s EPS to grow at a 21.9% rate per annum over the next five years.

In comparison, MRVL’s total assets have grown at a CAGR of 26.2% over the past three years. Analysts expect MRVL’s EPS to increase 50% year-over-year in the current year and 38.4% next year. Its revenue is expected to increase 45.2% year-over-year in the current year and 19.2% next year. The stock’s EPS is expected to grow at a 36.1% rate per annum over the next five years.

Valuation

In terms of non-GAAP forward P/E, MRVL is currently trading at 41.50x, 435.5% higher than MU’s 7.75x. In terms of forward EV/EBITDA, MRVL’s 36.48x compares with MU’s 4.29x.

Profitability

MU’s trailing-12-month revenue is eight times what MRVL generates. MU is also more profitable, with a 46.9% EBITDA margin versus MRVL’s 23.1%.

Also, MU’s ROE, ROA, and ROTC values of 14.1%, 7.5%, and 8.7%, respectively, compare with MRVL’s negative values.

POWR Ratings

While MRVL has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, MU has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.  

In terms of Value, MU has been graded an A, in sync with its lower-than-industry valuation ratios. MU’s 2.38x forward EV/Sales is 41.7% lower than the 4.08x industry average. However, MRVL’s D grade for Value reflects its overvaluation. The company has a 12.61x forward EV/Sales, 209.3% higher than the industry average of 4.08x.

MU has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. MU’s 14.1% trailing-12-month return on common equity is 71.3% higher than the 8.3% industry average. However, MRVL’s D grade for Quality is in sync with its negative trailing-12-month return on common equity.

Of the 97 stocks in the B-rated Semiconductor & Wireless Chip industry, MRVL is ranked #84, while MU is ranked #35.

Beyond what we’ve stated above, our POWR Ratings system has also rated MU and MRVL for Growth, Stability, Momentum, and Sentiment. Get all MRVL ratings here. Also, click here to see the additional POWR Ratings for MU. 

The Winner

Increasing government and corporate investments in the semiconductor industry to meet the rising demand for semiconductor chips from various industries should drive the industry’s growth. Both MU and MRVL are well-positioned to capitalize on the industry tailwinds. However, relatively lower valuation and higher profitability 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.

MU shares rose $0.08 (+0.11%) in after-hours trading Monday. Year-to-date, MU has declined -5.93%, versus a 15.77% 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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