The demand for 5G (fifth-generation) smartphones is set to explode in 2021. Market research firm IDC says that 5G smartphones could account for 40% of global smartphone volumes of 1.35 billion units this year, indicating that shipments could hit 540 million units in 2021.
That would be a huge jump over last year's 5G smartphone shipments of 213 million units. IDC also estimates that 5G smartphone shipments could exceed 1 billion units by 2025. All of this means that savvy investors can set themselves up for long-term upside by buying the right 5G stocks.
Qorvo (QRVO) and Marvell Technology Group (MRVL -3.25%) are two 5G stocks that I'd consider buying right away, as they are benefiting big-time from the transition to the next-generation wireless technology. Both stocks have rallied impressively over the past month, and investors shouldn't delay further as they can soar higher as the 5G catalyst gets stronger.
QRVO data by YCharts
Let's take a look at the reasons why now would be a good time to buy these stocks.
Image source: Getty Images.
1. Qorvo
Qorvo makes radio frequency (RF) chips that allow smartphones to connect to wireless networks and the internet. It gets most of its revenue by supplying these chips to OEMs (original equipment manufacturers) such as Apple (AAPL -2.19%), Samsung, Vivo, Oppo, and Xiaomi, among others. The mobile business produced 75% of the chipmaker's total revenue in the fiscal third quarter that ended on Jan. 2, 2021.
So, Qorvo is your ideal bet to take advantage of the rapid growth of 5G smartphones thanks to its relationship with the top OEMs that are dominating this space. The good news is that those relationships are translating into terrific financial growth. Qorvo is looking at $1.04 billion in revenue for the recently concluded fiscal fourth quarter of 2021, which would be a 32% jump over the prior-year period's top line.
This indicates that Qorvo is stepping on the gas as its Q3 revenue had increased 26% year over year. Also, don't be surprised to see Qorvo sustain this impressive top-line momentum in the new fiscal year as smartphone build activity at its key customers indicates. Apple, for instance, is going to play a crucial role in Qorvo's growth as it accounts for 33% of its total revenue, and the smartphone giant is reportedly on the way to break sales records in 2021.
Daniel Ives of Wedbush says that Apple's iPhone shipments could hit 250 million units in 2021, eclipsing 2015's shipments of 231 million units. More importantly, supply chain rumors suggest that Apple could bump its initial build orders for the 2021 iPhone lineup by 25% to 100 million units over last year. Given that Apple is expected to remain a dominant player in the 5G smartphone market, it can act as a multiyear catalyst for Qorvo.
And finally, 5G smartphones are going to give Qorvo's margin profile a big boost. That's because the company is witnessing a $5 to $7 increase in chip content in 5G smartphones over 4G. Qorvo also says that 5G RF content in midrange smartphones is reportedly doubling over 4G devices. The additional content is already driving the company's margins higher.
QRVO EPS Estimates for Current Fiscal Year data by YCharts
Not surprisingly, Qorvo's earnings growth is expected to pick up the pace thanks to a mix of higher volumes and stronger content in 5G smartphones. All of this makes Qorvo an ideal growth stock for investors to buy right now as it is trading at less than 20 times forward earnings.
2. Marvell Technology Group
Shares of Marvell Technology Group have taken off in the past month after a weak start to the year, thanks to the company's terrific Q4 results that were driven by a big surge in the networking business.
Marvell delivered $798 million in revenue last quarter, a jump of 11% over the prior-year period. It expects $800 million in revenue in the current quarter, which would translate into a 15% year-over-year increase. This acceleration in Marvell's top-line growth isn't surprising as the company is witnessing a sharp increase in demand for its networking products that go into setting up 5G infrastructure, which is essential for the functioning of 5G smartphones.
Marvell says that the demand for 5G infrastructure will get stronger across the world as spectrum auctions take place in more regions. The company is well placed to take advantage of this secular growth as it is supplying its 5G solutions to the likes of Samsung and Nokia, two companies that are playing a major role in 5G deployments around the globe.
Samsung recently announced that it has jointly developed a new chip platform with Marvell that can enhance the performance of 5G networks. The South Korean company plans to introduce this new chip platform to Tier 1 telecom customers in the ongoing quarter. This bodes well for Marvell as Samsung has quickly scaled up its presence in the 5G infrastructure market.
The company reportedly held 10% to 15% of the 5G infrastructure market in the middle of 2020 by closing deals with the likes of Verizon in the U.S. and NTT DoCoMo in Japan just last month. Additionally, the demand for Marvell's baseband processors that will be deployed in 5G base stations is also picking up.
Marvell estimates that its networking revenue is on track to increase 20% year over year in the current quarter thanks to these tailwinds. But more importantly, the networking business's impressive run could last for a long time to come as the 5G infrastructure market is expected to clock a compound annual growth rate (CAGR) of nearly 60% through 2027, according to third-party research. Similarly, the 5G base station market is also expected to clock a 33.7% CAGR through 2028 as deployments gather pace across the globe.
The networking business produced 55% of Marvell's total revenue last quarter and recorded 16% year-over-year growth. Marvell expects faster growth from this segment in the current quarter, and that's a trend that it could sustain for a long time because of the catalysts discussed above. And, given that Marvell is trading at just 21 times trailing earnings, investors have an opportunity to buy this 5G stock at an inexpensive valuation right now before it takes off in the future.
