All Chip Stocks Aren’t the Same: Here’s Why We Chose This One

We started a position in Marvell (MRVL)  late last week, a move we explained in greater detail in today’s Daily Rundown. Then the questions came in.

Members asked why the Action Alerts PLUS investing club opted for MRVL shares vs. others like Broadcom (AVGO)  and Cisco (CSCO) ? While they overlap in some markets, the chipmakers have differences. Broadcom’s exposure to personal computing and mobile is one of the reasons for avoiding those shares directly. We say directly, because we indirectly own AVGO shares, given they are the third largest holding in the First Trust Nasdaq Cybersecurity ETF (CIBR) . That cybersecurity exposure, our view, makes Broadcom far less of a pure-play on digital infrastructure compared to Marvell.

When it comes to exposing the portfolio, we would be more inclined to go with a pure-play chip company. But with Apple (AAPL)  increasingly relying on its own silicon for base band and soon radio frequency chips, we are likely to see flat to down revenue and EPS expectations for those companies in 2024 or beyond. In our view that would create a rather large overhang to overcome, given Apple’s iPhone currently accounts for around 24% of the global smartphone market by volume. That is likely to be a headwind for several companies, including Broadcom (BRCM)  as well as Qualcomm (QCOM)  and Skyworks (SWKS) , or at least force them to ramp other parts of their business to compensate for the pending revenue loss.

One candidate that we’ve been on the sidelines with in the Bullpen is Universal Display (OLED) . As we shared several months ago, when discussing this company, areas of interest for us at it relates to the shares are foldable smartphones, organic light emitting diode TVs and the eventual uptake of organic light emitting diode lighting in general illumination. Pretty much the evolution form smartphones and TVs to automotive lighting and general illumination is the same path that light emitting diodes (LEDs) followed. We’ve missed this last move in OLED shares, which was a pronounced one, but it’s one we would want to start a position between $113-$125. While we have yet to establish a price target for OLED shares, our thinking is that level would offer a better-balanced entry point from a reward vs. risk perspective given the current consensus price target of $150 for OLED shares.