Nvidia (NVDA -10.01%) is one of the most popular technology companies on the stock market at the moment, with a market capitalization of nearly $730 billion.
Shares of the graphics card specialist have appreciated tremendously in the past five years as the demand for its products has exploded thanks to their application in several verticals, including gaming PCs (personal computers), gaming consoles, data centers, and self-driving cars, among others.
However, Nvidia's stock market rally has made it quite expensive at 92 times trailing earnings and 58 times forward earnings. Nvidia also has a rich sales multiple of 31. So investors looking to get into this hot tech stock will have to pay a heavy premium to buy into its terrific top- and bottom-line growth.
NVDA data by YCharts
Wouldn't it be great if investors could get their hands on a company that's expected to grow at a faster pace than Nvidia and is trading at a cheaper valuation? Marvell Technology (MRVL -4.77%) stock is one such candidate -- it is not only cheaper than Nvidia, but it has the potential to outperform its more illustrious peer in the long run. Here's why.
Marvell Technology is serving several fast-growing markets
Nvidia's dominance of the GPU (graphics processing unit) space and the application of graphics cards in computers, data centers, and cars, among other use cases, have been the driving forces behind the company's rapid growth. Marvell Technology, similarly, supplies its chips to several fast-growing markets such as data centers, automotive/industrial, telecom, enterprise networking, and consumer.
Marvell's chips play a mission-critical role in these end markets. For instance, the company allows data center operators to increase bandwidth, reduce operating and capital costs, deploy high-performance computing applications, and take advantage of networked storage to increase cost and performance efficiencies.
Image source: Getty Images.
Not surprisingly, the company's data center chips are flying off the shelves, as evident from Marvell's fiscal 2022 third-quarter results, which were released on Dec. 2, 2021. Marvell's data center revenue jumped 109% year over year to $500 million in Q3, though it is worth noting that the segment's revenue growth was aided by the acquisition of Innovium. Marvell's Q3 data center revenue included 25 days of revenue from Innovium, but the company also pointed out that the segment also reported impressive growth on a stand-alone basis.
Marvell sees its data center business getting bigger in the future, as the company "has been winning a large number of incremental cloud-optimized silicon designs, and these are now in development." Marvell also has a $500 million revenue opportunity within the data center storage business for its storage accelerators. The company has already scored its first design win in this space, and its manufacturing partner has already announced the availability of products using its storage accelerators.
Looking ahead, Marvell sees stronger adoption of its storage accelerators, and this bodes well for its data center business, which supplied 41% of its revenue last quarter. Similarly, the carrier infrastructure business is on fire for Marvell thanks to the deployment of 5G networks.
Revenue from the carrier infrastructure business, which produced 18% of total revenue, increased 28% year over year in the third quarter to $215 million. This was ahead of what Marvell was expecting on account of 5G deployments. What's more, Marvell sees its carrier infrastructure business accelerating 40% year over year in the current quarter, with additional gains in the cards going forward on account of new design wins and content gains.
Coming to the enterprise networking business, which generated 20% of Marvell's top line last quarter, the company is benefiting from the growing adoption of ethernet switches. The segment's revenue increased 56% year over year to $247 million, and most of that growth was organic. Marvell sees this segment accelerating 60% year over year this quarter thanks to market share gains and recovery in enterprise spending.
In all, Marvell sees its end-market opportunity expanding to $30 billion in 2024 from $20 billion last year. What's more, the company is looking at annual revenue growth of 15% to 20% over the long run, driven primarily by its growth in the 5G, cloud, and automotive markets.
A better bet than Nvidia?
While Marvell is promising impressive long-term revenue growth, Wall Street is also anticipating rapid earnings growth. According to consensus estimates, Marvell's earnings could increase at an annual pace of 42% for the next five years. For perspective, Marvell is on track to finish fiscal 2022 with earnings of $1.55 per share, which would be a 68% increase over last year.
As such, it wouldn't be surprising to see Marvell's earnings grow at such a high rate in the coming years, especially considering the opportunities it is sitting on. If Marvell's earnings grow at the rate that Wall Street is forecasting, the company could generate annual earnings of nearly $8.95 per share at the end of the five-year forecast period.
Marvell has a forward earnings multiple of 38.6. Assuming a similar earnings multiple at the end of five years, its stock price could jump to $345 given the projected earnings at the end of the forecast period. That would translate into 295% gains from Marvell's closing stock price on Dec. 31.
Moreover, Marvell is way cheaper than Nvidia, as the forward earnings multiple indicates. Additionally, it trades at 17 times sales, which is a significant discount to Nvidia's sales multiple. Throw in the fact that Wall Street expects Marvell's earnings to grow at a faster pace over the next five years compared to Nvidia's projected annual earnings growth of 39%, and investors have solid reasons to buy Marvell Technology stock -- it offers better growth prospects at a substantially lower valuation.
