Internet service providers (ISPs) like Comcast (CMCSA -1.10%) and Charter Communications (CHTR -2.91%) have recently been talking up multi-year plans to upgrade their internet infrastructure. The result will be faster internet download and upload speeds for residences and businesses, both in urban and rural areas of the U.S. 

All this might sound like a reason to invest in Comcast or Charter, but these internet service upgrades are largely in response to 5G mobile networks (which U.S. carriers have been trying to offer as a type of home internet service), fiber-optic internet service expansion in urban areas, and even satellite-based internet. Thus, internet infrastructure is less a growth endeavor for ISPs, and more of a "keeping up with the Joneses" scenario.

But there is one stock that could be a huge beneficiary of the coming internet infrastructure upgrade cycle -- tiny chip designer MaxLinear (MXL 2.12%). Here's what you need to know.

A full suite of internet-enabling chips

Perhaps your first introduction to MaxLinear was the news that it was going to try to acquire fellow chip design house Silicon Motion (SIMO 1.92%) in May 2022. This was big news that could be a game changer for MaxLinear, but as I wrote a couple of weeks ago, there's doubt a tie-up between the two companies can proceed

That doesn't mean MaxLinear doesn't deserve some attention, though. On its own, this small company (current market cap of just $2.9 billion) has some interesting things going for it. While management doesn't provide specific numbers, its biggest end market is internet infrastructure -- things like network gateway processors, cable and fiber control chips, ethernet, 5G network backhaul equipment, and some data center components.  

MaxLinear also has wireless connectivity equipment that powers Wi-Fi 6, 6E, and eventually (perhaps starting in late 2023) next-gen Wi-Fi 7 routers. Wi-Fi upgrades for homes and businesses have been a hot trend in the last couple of years during the pandemic. MaxLinear's revenue from Wi-Fi reportedly doubled in 2022 and is on track to exceed $200 million in sales in 2023 (MaxLinear will haul in about $1.1 billion in sales in 2022, so the Wi-Fi business is a significant growth driver).

If you're trying to draw a comparison, you might think of MaxLinear as a mini Broadcom (AVGO -1.44%) -- which, notably, is indeed a giant competitor. However, MaxLinear doesn't have the smartphone chip business that Broadcom has, nor does it pay a dividend.

2022 should close out on a high note for this small chip business. The outlook for fourth-quarter 2022 (which will be reported on Feb. 1) implies full-year growth of about 26% over and above 2021 -- capping off an epic run for MaxLinear the last few years.

Chart showing MaxLinear's trailing 12-month revenue rising overall since 2014, with dip in 2020.

Data by YCharts.

How long can MaxLinear's expansion last?

Despite a stellar year, MaxLinear's stock has been punished by the market. Shares are down just over 50% since the start of 2022. Why are investors so glum on this growth stock?  

We can blame the bear market for part of the problem. MaxLinear just turned profitable on a GAAP basis in recent years, and at the start of 2022, shares were trading for a hefty price tag -- nearly 50 times trailing 12-month free cash flow. There's nothing like a market walloping to take care of that. The stock now trades for 24 times trailing 12-month GAAP earnings per share, and just over 10 times trailing 12-month free cash flow, as of this writing.  

But there are other issues besides the bear market. The problem, in my opinion, is twofold. First, if (and that's a big if in my mind) MaxLinear is given the green light to acquire its peer Silicon Motion, it will need to take on substantial debt. The market appears to be discounting this deal possibly taking place, even though MaxLinear says merging with Silicon Motion will immediately boost profit margins and create additional operating efficiencies (like the ability to leverage its relationship with chip fab partners like Taiwan Semiconductor Manufacturing (TSM 1.38%)).  

Second, Wall Street analysts seem to think that a stand-alone MaxLinear will put up much more flat growth going forward. The average outlook for revenue implies growth of just 3% in 2023. That outlook is likely being driven by the current downturn in the overall chip industry, although many enterprise-focused companies (like MaxLinear) have maintained they should be much better off than the hard-hit consumer electronics part of the chip market. For the record, MaxLinear hasn't provided any specific guidance for 2023 yet.

A cloudy outlook does prevent me from taking a position in MaxLinear at the moment.

However, if the company can at the very least hold on to its market share gains from the last two years or so, this stock looks like it could be mighty cheap right now. Internet infrastructure and Wi-Fi upgrades could cost ISP companies like Comcast and Charter (as well as their customers) billions of dollars over the next few years, providing plenty of outlets for MaxLinear to expand. MaxLinear stock is on my watchlist for 2023.