Marvell Technology Group (NASDAQ:MRVL) might not be a fashionable name in the semiconductor space, but it enjoys the same set of catalysts as some of its illustrious peers. From the Internet of Things (IoT) to connected cars and big data, the chipmaker is sitting on multiple opportunities that could help it accelerate remarkably in the long run.
Not surprisingly, Wall Street analysts now have a favorable view of Marvell's business, especially considering that the company is about to close its acquisition of chip developer Cavium. This acquisition is set to boost the chipmaker's addressable market by an impressive $8 billion, but this is just one of the many solid reasons why Marvell could help investors make money.
Booming storage demand will be a big catalyst
Marvell gets just over half of its revenue by supplying storage controllers for hard-disk drives (HDDs) and solid-state drives (SSDs), as well as data center storage. Demand for storage products such as SSDs is increasing at a terrific pace as the data boom continues. In the future, data centers will need to read/write data at faster speeds so that they can process the huge amount of information to power applications such as self-driving cars.
This can only be possible with the help of SSDs, which is why memory industry titan Micron is pushing the envelope in this space. Micron recently started shipping what it claims to be the industry's first quad-level cell (QLC) 1-terabyte SSD based on the 64-layer 3D NAND technology.
According to Micron, this product carries 33% more capacity than the existing triple-level cell (TLC) technology. This allows data center operators to deploy a smaller number of SSDs as compared to traditional HDDs that they have been using so far, which should lead to lower operating costs thanks to lower power consumption. What's more, QLC SSDs should allow data center operators to pack a server with more memory, allowing them to spend less money on constructing data center racks.
So SSD adoption in data centers should grow by leaps and bounds. Gartner forecasts that half of data centers will use SSDs to take on high-performance computing and big-data-driven workloads. By comparison, less than 10% of data centers currently deploy SSDs. And Marvell is leaving no stone unturned to capitalize on this opportunity.
The company recently launched a new SSD controller that's capable of enabling future generations of SSDs, including the QLC architecture that's hitting the market now. Marvell counts Micron as a customer, so it won't be surprising if the latter's rapid rise in the SSD market rubs off positively on its supplier.
Attacking the automotive opportunity
Connected cars are expected to take off rapidly in the near future. Counterpoint Research estimates that more than 125 million cars with embedded connectivity will be sold over the next five years.
This is too big a market for Marvell to pass up, so the company is busy building a wide portfolio of connectivity chips that target fast-growing automotive applications such as infotainment. Marvell's latest automotive connectivity product is equipped with Wi-Fi and Bluetooth options that allow two independent multimedia streams of data to run at the same time without compromising bandwidth.
Marvell claims that this chip can do much more as it includes vehicle-to-vehicle communication among its many features, paving the way for the chipmaker to tap a market that's projected to grow at an annual pace of 6% for the next five years. And attacking such markets is helping Marvell financially.
The company's connectivity business, which supplied 15% of total revenue last quarter, shot up 19% year over year thanks to its growing traction in the automotive business. Meanwhile, Marvell's second-largest revenue contributor -- the networking business -- could also take off as chip giant NVIDIA has decided to use Marvell's automotive Ethernet switch in the Pegasus self-driving car platform.
Growth at a great value
Marvell is pulling the right strings by targeting fast-growing niches. So it isn't surprising that analysts expect its earnings to increase at a compound annual growth rate of nearly 13% for the next five years. By comparison, the chipmaker has seen almost negligible earnings growth in the past half-decade.
But what's more important to note is that investors won't be paying through their noses to get into the stock. At just 14 times forward earnings, Marvell's valuation is significantly lower than the 25.3 industry average. And with a valuation significantly lower than its five-year average price-to-earnings ratio of nearly 33, now could be a really good time to get into the stock.