Why Marvell Technology Could Be the Next Hot 5G Stock
Don't be surprised if chipmaker Marvell Technology's (NASDAQ: MRVL) next quarterly report -- slated for release on May 30 -- shows that 5G catalysts kicked in sooner than expected.
5G-driven growth is imminent
Marvell Technology stock was down in the dumps last year. But it made a remarkable comeback after the company's fourth-quarter results came out in early March. Marvell had given clear indications that its 5G business was about to take off this year.
According to CEO Matthew Murphy on the company's March conference call with analysts: "Our design win momentum continues in 5G, and we recently announced a significant long-term partnership with Samsung to deliver multiple generations of embedded processors and baseband processors for both LTE and 5G base stations. We expect shipments of our 5G products to start to ramp toward the end of the fiscal year 2020 and continue to grow rapidly into fiscal 2021 and beyond."
However, don't be surprised to see Marvell's 5G shipments start to climb earlier than expected thanks to an earlier-than-anticipated deployment of 5G networks.
Forty-two new commercial 5G networks are expected to be deployed this year across the globe. For comparison, there were only 13 commercial 5G networks active at the end of 2018, according to telecom research firm VIAVI Solutions.
More importantly, 5G networks have the potential to drive Marvell's business for a long time to come.
The big picture
Market research firm IDC forecasts that spending on 5G infrastructure will hit $26 billion in 2022, compared with just $528 million last year. So Marvell's addressable market is going to get bigger in the coming years, and the company has tied up with the right players to take advantage of this long-term opportunity.
In February, Marvell announced that it is extending its partnership with Samsung (NASDAQOTH: SSNLF) for the deployment of radio technology and processors for use in high-speed 5G networks. Samsung is well-placed to tap into the 5G network infrastructure demand because it is supplying base station equipment to those telecom carriers in the U.S. and South Korea that are engaged in early 5G deployments.
The likes of Verizon and AT&T in the U.S. and SK Telecom, KT, and LG Uplus in South Korea are using Samsung base stations. The South Korean giant is being helped by the fact that Chinese equipment maker Huawei has been frozen out of key markets such as the U.S. All four Japanese carriers have also decided against using equipment from Huawei and ZTE.
So Samsung could win big in the 5G equipment market at the expense of Huawei, which is good news for Marvell Technology as well.
This is why I believe now is a good time to get into this 5G stock for the long haul, as it trades at 18.5 times forward earnings. This is lower than the S&P 500's average forward price-to-earnings (P/E) ratio of 20.6, and well below Marvell's five-year earnings multiple of 40.5.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.