Qualcomm Incorporated (QCOM) and Marvell Technology, Inc. (MRVL) are two prominent players in the semiconductor chip industry. QCOM in San Diego, Calif., is a multinational semiconductor and telecommunications equipment company that develops and delivers products and services based on code-division multiple access (CDMA) technology used in digital wireless communications equipment and satellite ground stations. In comparison, Hamilton, Bermuda-based MRVL is a semiconductor manufacturer that offers a security and networking platform, secure data processing, networking, and storage solutions. It designs, develops, and sells analog, mixed-signal, digital signal processing, embedded and standalone integrated circuits, and a portfolio of Ethernet solutions.

Despite the semiconductor chip shortage and supply chain disruptions worldwide, global semiconductor sales increased 24% year-over-year to $49.7 billion in November 2021, driven by surging demand from several industries and rising government and corporate investments. Along with increased production, export controls on critical goods and the passage of the America COMPETES Act by the U.S. House of Representatives are expected to ease the chip shortage later this year.

Furthermore, the manufacturing of advanced chips for cutting-edge technology, such as 5G, IoT, AI, and continued breakthroughs in the chip manufacturing process, make the industry’s prospects bright. Growing investor optimism in this space is evident in the iShares PHLX SOX Semiconductor Sector Index ETF’s (SOXX) 4.9% gains over the past six months versus the SPDR S&P 500 Trust ETF’s (SPY) 1.9% returns. The global semiconductor market is expected to grow at a 6.6% CAGR to  $772.03 billion by 2030. So, both QCOM and MRVL should benefit.

Click here to checkout our Semiconductor Industry Report for 2022

While QCOM gained 22.1% over the past six months, MRVL surged 26.4%. MRVL is also a clear winner with 48.3% gains versus QCOM’s 21.2% returns over the past year. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On Feb. 8, 2022, QCOM and Ferrari N.V. (RACE), an Italian sports car designer and manufacturer, announced a strategic technology collaboration to accelerate RACE’s digital transformation. QCOM will be the systems solutions provider for forthcoming Ferrari road cars and a Premium Partner for the Scuderia Ferrari Formula 1 and Ferrari eSports teams and will bring the latest automotive technology advancements to Ferrari road cars using its Snapdragon Digital Chassis. This will enable RACE to deliver enhanced safety and immersive digital experiences.

On Dec. 7, 2021, MRVL announced a collaboration with OE Solutions, a leading supplier of optoelectronic transceiver solutions for broadband wireless and wireline markets, to deliver the industry’s first production-ready 100G QSFP-DD optical modules optimized for 5G backhaul and Metro Access applications. The OE Solutions 100G QSFP-DD Coherent Transceiver with the Marvell Deneb Coherent DSP will enable the transition of 10G to 100G coherent solutions, delivering unprecedented performance and scalability. The companies should gain widespread recognition and benefit from the accelerating deployment of 5G infrastructure worldwide.

Recent Financial Results

QCOM’s non-GAAP revenues for its fiscal 2022 first quarter, ended Dec. 26, 2021, increased 30% year-over-year to $10.70 billion. The company’s non-GAAP earnings before taxes came in at $3.69 billion, up 46.9% from the prior-year period. While its non-GAAP net income increased 46.9% year-over-year to $3.69 billion, its non-GAAP EPS increased 48.9% to $3.23. The company had $6.61 billion in cash and cash equivalents as of Dec. 26, 2021.

For its fiscal 2022 third quarter, ended Oct. 30, 2021, MRVL’s net revenues increased 61.5% year-over-year to $1.21 billion. The company’s non-GAAP gross profit came in at $788.35 million, up 66.7% from the prior-year period. Its non-GAAP operating income was $417.82 million, representing a 68.9% rise from the year-ago period. Its non-GAAP net income increased 116.4% year-over-year to $364.32 million. MRVL’s non-GAAP EPS was $0.43, indicating a 72% year-over-year improvement. The company had $523.50 million in cash and cash equivalents as of October 30, 2021.

Past and Expected Financial Performance

QCOM’s revenue and EBITDA have increased at CAGRs of 18.9% and 31.9%, respectively, over the past three years. The company’s levered free cash flow has increased at a 23.3% CAGR over the past three years.

Analysts expect QCOM’s EPS to rise 38.5% year-over-year in its fiscal 2022, ended Sept.30, 2022, and 6.2% in fiscal 2023. Its revenue is expected to grow 26.5% year-over-year in fiscal 2022 and 7.5% in fiscal 2023. The company’s EPS is expected to grow at a 14.7% rate per annum over the next five years.

In comparison, MRVL’s revenue and EBITDA have grown at CAGRs of 12.7% and 15.6%, respectively, over the past three years. And the company’s levered free cash flow has grown at a 15.4% CAGR over the past three years.

MRVL’s EPS is expected to rise 68.5% year-over-year in its fiscal 2022, ended Jan. 31, 2022, and 41.3% in fiscal 2023. Its revenue is expected to grow 49.7% year-over-year in fiscal 2022 and 31.9% in fiscal 2023. Analysts expect the company’s EPS to grow at a 42.8% rate per annum over the next five years.

Valuation

In terms of non-GAAP forward PEG, MRVL is currently trading at 1.24x, which is 44.2% higher than QCOM’s 0.86x. And in terms of forward EV/Sales, QCOM’s 4.76x compares with MRVL’s 14.54x.

Profitability

QCOM’s trailing-12-month revenue is almost 9.2 times MRVL’s. QCOM is also more profitable, with a 27.7% net income margin versus MRVL’s negative value.

Furthermore, QCOM’s 106.7%, 17.3%, and 27.7% respective ROE, ROA, and ROTC compare favorably with MRVL’s negative values.

POWR Ratings

While QCOM has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, MRVL has an overall D grade, equating to a Sell. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

QCOM has a B grade for Value, which is in sync with its lower-than-industry valuations. It has a 16.02x forward Price/Cash Flow, which is 24.4% lower than the 21.20x industry average. MRVL’s D grade for Value reflects its overvaluation. MRVL’s 62.76x forward Price/Cash Flow is 196% higher than the 21.20x industry average.

QCOM has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. QCOM’s 106.7% trailing-12-month return on equity (ROE) is 1181% higher than the 8.33% industry average. MRVL’s D grade for Quality is in sync with its negative ROE.

Among the 98 stocks in the A-rated Semiconductor & Wireless Chip industry, QCOM is ranked #5, while MRVL is ranked #88.

Beyond what we have stated above, our POWR Ratings system has also rated QCOM and MRVL for Growth, Sentiment, Momentum, and Stability. Get all QCOM ratings here. Also, click here to see the additional POWR Ratings for MRVL.

The Winner

Because the semiconductor chip shortage is expected to ease later this year with a ramp-up in production, both QCOM and MRVL should benefit. However, we think higher profitability and lower valuations make QCOM a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Semiconductor & Wireless Chip industry.

Click here to checkout our Semiconductor Industry Report for 2022

QCOM shares were trading at $182.55 per share on Wednesday afternoon, up $3.96 (+2.22%). Year-to-date, QCOM has declined -0.17%, versus a -3.71% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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