High-speed internet has a long way to go in the United States, especially in rural and suburban areas.According to various sources, the United States (the very birthplace of the Internet) even makes the top ten lists for mobile or broadband Internet download speeds. Is not …
However, many factors determine the quality of a country’s internet connection. Geographic size is one of the limiting factors, and the vast open spaces in the US are a major hurdle. But this is starting to change. 5G and other wireless technologies are hailed as game-changers, but broadband is also on the cusp of a major upgrade.
Two chip stocks could be the best way for investors to cash in. Here’s why.
Broadcom: The overlooked giant in the telecoms industry
cable giant comcast (CMCSA 0.51%)The company, which operates internet services through its Xfinity brand, plans to begin rolling out next-generation broadband internet in the second half of 2023. Comcast currently offers Internet download speeds of up to 1.2 Gbps (gigabits per second) nationwide. Comcast provides this via DOCSIS 3.1 technology (Data Over Cable Service Interface Specifications). However, Comcast is gearing up for his DOCSIS 4.0 and believes it will be able to deliver speeds of up to 6.0 Gbps to over 50 million locations by 2025.
charter communication (CHTR 0.83%) We are also testing DOCSIS 4.0 for local focused Internet services. The upgrade will be phased and should be completed by 2025. This brings leading speeds of up to 5 Gbps to the majority of households we can serve, and up to 10 Gbps for select enterprise customers who want to pay. Charter recently revealed that the plan could cost up to $5.5 billion.
Location of DOCSIS 4.0 broadcom (AVGO 0.49%) come in. chip giant has been working on this Internet infrastructure technology for years and has spent the last few years with Comcast testing modems and other hardware in preparation for major network upgrades. Broadcom designs silicon for everything from chips that connect smartphones and other devices to the actual network infrastructure. Faster Internet service could be a big problem for Broadcom.
Much of Broadcom’s business stems from such large-scale commercial projects, especially the data centers (both on-premises for private businesses and public cloud data centers) also required for Internet infrastructure. Broadband Internet-specific revenue was approximately 11% of total revenue last quarter. Growing at a pace of 20% year-on-yearHeading into 2023, Broadcom expects the segment to grow by around 30%. Clearly, sales to Comcast and other Internet service providers are starting to heat up.
When Consumer electronics purchases are currently in a serious slump, Broadcom’s steady sales to enterprises buck this trend. Broadcom is poised to grab a lot of business when the new US broadband upgrade project rolls out in his 2023. The stock is trading at less than 13 times its earnings one year ahead and currently pays an annualized dividend of 3.3%.
MaxLinear: Small but quickly becoming a powerful name in communications technology?
If Broadcom is the little-noticed giant of the chip industry, its name is MaxLinear (MXL 0.69%) It may not be very familiar to you. This is a small chip designer with a market cap of less than his $2.7 billion. Like Broadcom, we rarely see his MaxLinear logo on any device, but it’s ubiquitous in the internet infrastructure and connected device space. CEO Kishore Seendripu worked at Broadcom before co-founding MaxLinear in 2003.
The company has acquired other small silicon design businesses over the years, including a small wireless network backhaul business from Broadcom in 2016. Various internet service providers, including related his WiFi connectivity solutions (modems, etc.) that homes and businesses need to connect to the internet.
As with all small businesses, MaxLinear’s larger peers pose the greatest risk. In fact, the company continues its run-in with Broadcom, commenting in 2018 when the Federal Trade Commission reviewed Broadcom’s exclusivity over various designs of its broadband internet silicon. Either way, MaxLinear holds its own. In his first nine months of 2022, his earnings increased 29% to $830 million, during which he generated free cash flow of $294 million.
MaxLinear is also in the process of acquiring a memory controller chip designer. silicon motion (Simo 0.45%) $3.8 billion in cash and new stock. MaxLinear believes adding Silicon Motion to the mix will immediately improve the profitability of the new company. The deal is expected to close by mid-2023.
Concerns about a 2023 recession are growing, but as Comcast, Charter and others work to bring better internet connectivity to homes and small businesses, MaxLinear could still do well. The stock is trading at just 9.5x over a 12-month period. free cash flow, and only 8.7 times the expected return one year ahead. This tiny chip designer is gearing up for the next generation of Internet services, so it’s worth digging deeper.
