MRVL Stock: Going Higher on Growing Chips Demand

Marvell Stock
credits:istock.com/monsitj

Marvell Stock to Gain from Product Strength

Today’s stock represents another of our favourite methods of investing in growth stocks – picks and shovels method. Picks and shovels stocks are the best and inexpensive way of playing the secular uptrends in technology, without getting exposed to high risk. Such companies supply the raw material to businesses gaining from the rising technology trends of today.

As the demand for cloud computing, bigger storage, high-speed networks, data centers etc keeps on increasing, investors in these picks and shovels stocks shall enjoy superlative returns.

The case in point being Marvell Technology Group Ltd. (NASDAQ:MRVL), which is a leading global chip maker and has expertise in developing complex System-on-a-Chip (SoC) devices, in the areas of analog, mixed-signal, digital signal processing, and embedded integrated circuits. Marvell has a broad portfolio that includes devices for storage, networking and connectivity, which power data centers and networks around the world.

The company dominates the market in data storage controller solutions that cover consumer, mobile, desktop and enterprise markets. Its networking products address end markets in cloud, enterprise, small and medium business and service provider networks. Its connectivity products address end markets in consumer, enterprise, desktop, service provider networks and automotive. Despite challenges, Marvell’s growing product strength and performance have been pushing Marvell stock higher.   

Over the last few years, Marvell has successfully transitioned from a supplier of stand-alone semiconductor parts to a supplier of fully integrated platform solutions. It was instrumental in revolutionizing the digital storage industry and today, that spirit of innovation remains at the core of the company’s storage, network infrastructure, and wireless connectivity solutions.

With leading intellectual property and deep expertise, Marvell’s semiconductor solutions continue to transform the cloud, enterprise, automotive, industrial, and consumer markets, thereby pushing MRVL stock higher.

And the future appears to get better going forward. As per the recent forecasts by the World Semiconductor Sales Statistics (WSTS), the world semiconductor market is expected to grow to $409 billion in 2017 and $437 billion in 2018. For the year 2017, this represents a growth of 20.6% which is the largest-ever growth recorded since the year 2010. Moreover, the global semiconductor market is expected to continue growing through 2018. (Source: WSTS Semiconductor Market Forecast Autumn 2017, WSTS, November 28, 2017)

The company has turned around well in the last couple of years and looks in a good position to take advantage of the positive trends in the semiconductor industry. Last year, Marvell Technology announced the acquisition of Cavium, which leads in building network processors. Cavium dominates in networking solutions and complements the strength that Marvell has in storage solutions. Besides having a strong product portfolio, the deal would also result in considerable cost savings. The transaction is expected to close in mid-calendar 2018.  

The combined product portfolios of the two companies shall help Marvell to deliver comprehensive end-to-end solutions for customers across the cloud data center, enterprise and service provider markets, and shall expand the serviceable addressable market to more than $16 billion. (Source: Marvell and Cavium to Combine Creating an Infrastructure Solutions Powerhouse, Marvell Technology Group Ltd, November 20, 2017)

The company is executing its strategy well and this is evident from its quarterly results. Marvell Technology reported its third quarter results in November last year, which were better than analyst expectations. The chip maker posted revenue of $616 million and adjusted income was $0.34 per diluted share. Marvell CEO Matt Murphy said that the company’s strong performance was driven by growth in its core businesses of storage, networking and connectivity; and improved execution across the company.

Marvell stock has been gaining on the back of this optimism. MRVL stock has gained over 150% in the last five years and is up by more than 50% over the last one year. The following chart shows this phenomenal rise.  

Marvell chart

Chart courtesy of www.stockcharts.com

Analyst’s Take

The overall sentiment appears to be positive for this picks and shovels stock, which is preparing itself well for the new challenges and opportunities ahead.

The demand for storage is expected to be strong as enterprises and data centers continue to grow and connectivity business is gaining strength from automotive and smart voice connected devices. Cavium’s networking portfolio shall be another big boost for the business. Marvell stock is likely to continue going higher and investors should not miss the opportunity