Earnings season has not been kind to semiconductor stocks. After two years of heavy spending driven by work-from-home updates, consumer electronics have reached a state of oversupply. Companies with outsized exposure to this area of tech hardware are in for some pain as a new cyclical downturn begins

But that's not the case for Marvell Technology Group (MRVL 1.54%).The company's top end markets -- infrastructure for data centers, 5G mobile networks, and AI -- are very much still in growth mode. Shares got clobbered anyways after the company released its last earnings report, but for a very different reason: supply chain constraints. Here's why the stock is a buy right now.

Slowing growth ... for now

2021 was an eventful year for Marvell. It made two acquisitions to top off a pivot in its business toward data infrastructure (data center, mobile network, and industrial and automotive equipment). Today, 89% of the business is focused on data infrastructure. Just six years ago, nearly two-thirds of Marvell's sales came from consumer electronics. After its takeovers last autumn, Marvell management outlined its two-year goal to reach annualized revenue of $6 billion (based on an assumption of 15% to 20% revenue growth). Less than a year later, that two-year goal has been achieved.

Q2 fiscal 2023 (the three months ended July 30, 2022) revenue was $1.52 billion, or just over $6 billion on an annualized basis. Q2 revenue was up 41% year over year, or up 5% sequentially. Adjusted operating income was up 67% from a year ago to $554 million, or up 8% from Q1 as the company benefits from efficiency gains after its acquisitions last year.

So why did the stock drop after releasing quarterly earnings? The chip shortage is still hurting companies like Marvell that focus on enterprise solutions. Because of supply chain issues, especially in its data center products, Marvell and its manufacturing partners can't keep up with demand. As a result, Q3 revenue is expected to be just 29% year over year and 3% sequentially at the midpoint of guidance of $1.56 billion. It's still strong growth, but far below the annualized rate of sales outperformance the company has been reporting as of late.

The good news is CEO Matt Murphy sees some of these constraints easing by the fourth quarter this year, and revenue growth should accelerate again from there. Nevertheless, with investors already pricing in rapid expansion of sales and profitability (the stock currently trades for 52 times enterprise value to trailing 12-month free cash flow), shares sold off hard in response to the immediate-term outlook.

A great buying opportunity if you believe in data centers and AI

Marvell may trade at a premium based on the last year of results, but this is still a growth business with a head of steam. Data centers are undergoing a massive upgrade cycle as companies around the world start to adopt AI-powered applications. AI needs massive amounts of data, and Marvell's components are integral pieces of the solution. It also has a small but burgeoning automotive segment that is benefiting from advanced driver-assist systems (essentially robotics systems for cars).

Free cash flow is rapidly scaling up as Marvell puts in the work to fully integrate those acquisitions from last year. Free cash flow was $256 million in Q2, a margin of nearly 17% that will continue to improve with time as supply chain issues abate and Marvell further unlocks synergies from its transformation efforts. Expect shares to remain highly volatile, but this is a top chip stock if you want to invest in data center, AI, 5G network, and related tech developments over the next decade. I remain a buyer.