Nvidia's (NVDA +1.63%) fiscal 2022 second-quarter results (for the three months ending July 31, 2022) sent shockwaves through the tech industry, as its tepid year-over-year growth, shrinking margins, and terrible outlook suggested that robust semiconductor demand may have come to an end.
However, a closer look at Nvidia's quarterly results indicates that its downturn is limited to one niche: Video gaming. The 33% decline in revenue from sales of gaming graphics cards weighed heavily on Nvidia's quarterly results. The company had to contend with an oversupply of GPUs (graphics processing units) as cryptocurrency miners sold off their chips and demand from gamers weakened.
NASDAQ: NVDA
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As a result, Nvidia has been forced to reduce the price of its GPUs to move more units, and the partners that sell its goods are placing lower orders. That's part of an ongoing inventory correction caused by weak demand and high supply.
However, not all semiconductor stocks are in the same boat. Advanced Micro Devices recently delivered solid results and sunny guidance despite being a Nvidia rival. And now Marvell Technology Group (MRVL +4.23%) has shown that the purported slowdown in semiconductor demand may indeed be a myth. Let's see why.
Marvell Technology delivers terrific results
Marvell Technology released fiscal 2023 second-quarter results (for the three months ending July 30) on Aug. 25. The chipmaker's revenue shot up 41% year-over-year to a record $1.52 billion. The company reported adjusted earnings of $0.57 per share for the quarter, up from $0.34 per share in the year-ago period.
NASDAQ: MRVL
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What's impressive is that the chipmaker recorded this growth despite supply constraints. Marvell's CEO pointed out on the latest earnings conference call that it expects to "see healthy demand for our products with the exception of consumer HDD, and our overall demand is outpacing supply."
The company serves multiple end markets such as data centers, automotive, enterprise networking, carrier infrastructure, and consumer. This diversity allows Marvell to overcome any weakness in certain pockets of the semiconductor industry. Additionally, the company's presence in fast-growing semiconductor markets such as data centers, carrier infrastructure, and automotive explains why it is in a better position than peers like Nvidia.
Marvell's data center business, for instance, grew 48% year-over-year last quarter to $643 million. The company believes that the data center will be its "single biggest long-term growth driver," which is not surprising as Marvell sells a host of chips -- data processing units (DPUs), ethernet controllers, storage accelerators, and others -- that power data centers. The demand for data center chips is expected to grow at an annual pace of 21% through 2027, so it wouldn't be surprising to see Marvell sustain its impressive growth in the long run.
Similarly, the automotive market has started gaining impressive traction. The segment's revenue was up 46% year-over-year last quarter to $84 million. While this business currently accounts for just 6% of the company's overall revenue, it could move the needle in a bigger way for Marvell in the long run. That's because Marvell is witnessing solid design win momentum in the automotive business, which means that its chips are being selected for deployment by OEMs (original equipment manufacturers) and component suppliers.
For example, Marvell says that its automotive ethernet chips have been selected by "eight of the 10 largest OEMs worldwide and 36 OEMs in total." This puts Marvell on track to take advantage of another terrific opportunity, as the automotive ethernet market is expected to clock annual growth of 21% through 2026.
Why Marvell stock is a better bet than Nvidia right now
It is worth noting that the automotive and data center markets delivered impressive growth for Nvidia last quarter. But the company's reliance on the gaming business for 30% of its top line weighed on its performance. Marvell, on the other hand, got 42% of its revenue from the data center business. The automotive, carrier infrastructure, and enterprise networking markets accounted for 6%, 19%, and 22% of its top line last quarter.
These secular, fast-growing opportunities should help Marvell sustain its impressive growth in the long run. This explains why analysts expect its bottom line to grow at an annual pace of 42% for the next five years. Nvidia's earnings, on the other hand, are expected to grow at an annual pace of 23% over the next five years.
However, Nvidia trades at more than 13 times sales and over 45 times forward earnings. Marvell, on the other hand, trades at seven times sales, and has a forward earnings multiple of 21.
More importantly, the company is insulated from the headwinds that Nvidia faces right now. This is evident from the company's impressive growth last quarter, and a solid outlook that calls for $1.56 billion in revenue this quarter, which would be an increase of 29% over the prior year. Nvidia, for comparison, issued a terrible outlook that points toward a significant contraction in its top and bottom lines in the current quarter.
So investors looking to buy a top semiconductor stock right now may want to turn their attention toward Marvell Technology -- it is not only cheaper than Nvidia, but its business is in healthier shape.
