3 Reasons to Add Marvell Technology to Your Buy List for 2022

Third-quarter results from Marvell Technology (MRVL -3.86%) are out, and they did not disappoint. The highly acquisitive chip design firm has been on a tear this year, acquiring both Inphi and Innovium to broaden its expertise in data centers.

But there's a whole lot more to Marvell's business these days that could continue to power the company higher in the years to come. Here are three reasons why the stock is worth adding to your watch list for 2022.

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Data center revenue is soaring

Marvell easily surpassed its own guidance for the fiscal 2022 third quarter (the three months ended Oct. 30, 2021), posting total year-over-year sales growth of 61% to $1.21 billion. Of the total, 41% of sales came from the data center end market.

Data source: Marvell Technology. 

Of course, Marvell enjoyed a big boost from its recent takeover of Inphi (networking and optical connectivity equipment) and Innovium (data center switches). But the standalone Marvell business is doing just fine too, and adding these two new companies to the mix is a real game-changer. Marvell said it's landing new design wins thanks to integrating Inphi and Innovium technology into its existing portfolio, and management thinks it will enjoy about 30% year-over-year data center growth through fiscal 2023. 

Longer-term, Marvell's data center business is a fantastic reason to buy and hold this chip stock. For every cloud computing service out there, a data center is needed to do the work. With a new upgrade cycle in cloud infrastructure getting under way, Marvell is a great way to play the movement.

Laying the foundation for a leading auto supplier business

Data centers aren't the only secular growth trend at play here. Marvell reported strong growth in its networking and carrier infrastructure (telecom industry) businesses as well. 5G mobile networks are still early in their construction in most markets around the world, and like its data center segment, the company is also landing new chip design wins for 5G too. 

But mobile networks aren't the only mobile computing system at play here -- the auto industry is an especially exciting realm for Marvell. Housed within its industrials segment, management said annualized auto industry revenue is now at $140 million. Today, most of that revenue is from ethernet connectivity, helping automakers stitch together data moving from one system to another in the modern tech-enabled vehicle. Eventually, Marvell thinks this auto ethernet business will be worth hundreds of millions per year. 

But it has even greater ambitions for the connected car. Marvell announced the launch of a new subsidiary business called Brightlane focused on automakers, which includes not just ethernet equipment but also processors (another "multi-billion per year market opportunity") custom designed to act as the "brains" of electric and semi-autonomous vehicles. As cars get smarter in the decade ahead, computing and data management will be a big business within the automaking industry.

Profits will follow in time

Revenue growth is undisputed, but thanks in no small part to acquisition costs, Marvell's bottom line is a bit of a mess right now. Its net loss totaled $62.5 million in the fiscal third quarter, although on an adjusted basis, the company reported net income of $364.3 million, which excludes non-cash amortization expense of acquired assets. Excluding $3.5 billion in cash acquisition charges, free cash flow was $334 million through the first nine months of the current fiscal year, down 41% from $562 million during the same period last year.

As Marvell works through these purchase costs, it expects to emerge with improved free-cash-flow-generating ability. The combination of assets is equating to content gains at data center, telecom, automotive, and other customers. In other words, Marvell is becoming more of a one-stop shop for computing engineers and developers, and the combination of multiple chip design technologies is helping it innovate new products for those same users. As a result, when revenue rises, profits should (eventually) rise by an even greater amount. 

Marvell Technology stock currently trades for 59 times current-year adjusted earnings per share estimates. With double-digit revenue growth on pace to continue into the new year and beyond, this is an oft-overlooked leader in the semiconductor industry that deserves your attention.