The Chip Company Heralding the Era of the Metaverse

Shah Gilani|December 6, 2021

The meta-verse isn’t even close to being fully realized, but it’s already dishing up profits for companies that provide critical infrastructure to make its virtual world a reality.

Meta Platforms (FB) has already invested more than $16 billion in building and operating 18 Facebook cloud campuses in the US. It expects to invest as much as $34 billion as it retools its data centers and networks for the demands of a globally-distributed virtual world.

The FB numbers are big, that’s for sure, but they’re only part of the global data center demand story. Companies all around the world are moving operations into the cloud. As a result, global data center infrastructure spending will climb to $200 billion in 2021.

That’s a solid tailwind for companies that support data center buildouts.

Even with all that investment, the metaverse won’t ever be widely adopted if global networks aren’t fast enough to keep the user experience exciting. Today, even the most popular communal gaming experiences are limited by how many users can join and play at any given time, in part, because of network limitations.

That means the metaverse will need significantly faster global networks to meet its potential.

Which is exactly what I’m watching this week.

Worldwide 5G network infrastructure revenue is on pace to grow 39% to total $19.1 billion in 2021, up from $13.7 billion in 2020, and it’s expected to reach 23.25 billion in 2022, according to the latest forecast by Gartner, Inc.

That brings me to the first company I’m watching this week, Marvell Technology (MRVL).

Shares of MRVL jumped as much as 24.58% early on Friday after the Delaware-based semiconductor company reported better-than-expected fourth-quarter guidance on top of an already stellar third-quarter results.

Over the last three months, earnings came in at $0.43 per share on revenue of $1.21 billion, which easily topped analyst estimates of $0.38 per share on revenue of $1.15 billion.

Driving the Q3 numbers was the company’s data center business which represented 41% of total quarterly revenue and grew 15% sequentially and 109% year over year.

Looking ahead in the next year, EPS was guided in a range of $0.45 to $0.51 on revenue of approximately $1.32 billion. This is compared with estimates for EPS of $0.42 on revenue of $1.21 billion.

The company also expects its 5G business to increase 30% sequentially and its data center business to grow in the double digits.

I like everything about those numbers. Not only are they strong on their own, but they’re also backed up by two of the strongest growth opportunities in the global IT space.

As usual, I don’t like to chase stocks, even when they have good numbers and solid fundamentals, which is why I’m keeping an eye on MRVL for a possible trade signal.

If MRVL trades down to $77.50 by December 17, 2021, I like buying the MRVL February 18, 2022 $77.50/$80 Call Spread for $1.20 or less. Plan on selling the MRVL February 18, 2022 $77.50/$80 Call Spread for a 100% profit, or if shares of MRVL close below $70.50.

But that’s not the only company making waves this week.

Next up, I’m watching Zillow Group Inc. (Z).

Shares of Z were up more than 10% early Friday after the company announced a share buyback program of up to $750 million.

Sounds good, right?

Not so fast.

You might remember, earlier this year, shares of Z tanked after the company reported its third-quarter results that included a huge bust for the company’s US home buying operations.

Since then, the company reported it has made “significant progress” in winding down its existing housing inventory and intends to use the proceeds of the wind-down to fund the share repurchase program.

That’s interesting because it tells me the company doesn’t see anywhere it can deploy that capital, either internally or through acquisitions, to grow the company. But that’s just my take.

I think we could see shares of Z trade a little higher as brand-name bargain-hunters push shares higher, but in the long run, I think the stock is going to come back down to pre-Friday levels.

If shares of Z trade up to $63.75 by December 17, 2021, I like buying the Z February $55/$50 Put Spread for $2.00 or less. Plan on selling the Z February $55/$50 Put Spread for a 100% profit, or if shares of Z close above $78.00.

Anything on your watchlist this week? Tell me all about it at shah@totalwealthresearch.com. There’s a chance I may feature your stock in my weekly analysis video that’ll hit inboxes this Friday.

Hope to hear from you,

Shah