Chipmakers Micron Technology (MU 2.55%) and Marvell Technology Group (MRVL 2.21%) have been riding high on growing memory demand. Both companies have outpaced the NASDAQ-100 Technology Sector index quite comfortably over the past year as the increase in demand for DRAM (dynamic random access memory), flash memory, and hard-disk drives (HDD) has rubbed off positively on their businesses.

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Micron has been the bigger winner of the two as investors have bid up the stock rapidly thanks to the massive growth in its revenue and earnings. Marvell, on the other hand, has seen muted growth, but it has taken off impressively in the past six months as its business is turning around for the better. So, which one of the two stocks should investors go for at their current valuation levels and prevailing market conditions? Let's find out.

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The case for Micron

Micron Technology investors have benefited big time from the memory cycle boom. The DRAM market, in particular, has been the driving force behind the chipmaker as it gets two-thirds of its revenue from this segment. Last year, the DRAM market's revenue rose 76%, and it is expected to grow another 30% in 2018 to a total of $96 billion thanks to catalysts such as server DRAM.

Server DRAM prices are expected to rise 4% during the first quarter, but should gain more traction in subsequent quarters thanks to the growth in Chinese demand. Analysts at DRAMeXchange estimate that Chinese server DRAM demand will increase  20% during the second quarter, which is good news for Micron as it gets 30% of its DRAM revenue from the server segment.

Moreover, Micron commanded almost 21% of the DRAM market at the end of 2017. This means that the chipmaker's top line should receive a solid bump this year if it manages to hold on to its share of this expanding market. However, investors shouldn't forget that the NAND flash business could prove to be Micron's Achilles' heel as it is getting into oversupply.

The NAND flash business supplies 26% of Micron's top line, and it could weigh on the company's revenue and margins if prices deteriorate as expected. DRAMeXchange estimates that NAND suppliers have reduced prices in the range of 3% to 10% this quarter, and have lined up deeper cuts in the range of 10% to 15% during the second quarter.

The NAND market is expected to remain in oversupply throughout the year and this could mitigate the gains recorded in the DRAM side of the business. So, Micron's growth this year might not be as spectacular as last year.

The case for Marvell

Marvell Technology's growth hasn't been as fast as Micron's, but there are a few advantages that it enjoys. For instance, Marvell isn't dependent on the cyclical memory industry. Of course, the company does get 53% of its revenue from the storage business, but it doesn't make memory chips like DRAM or NAND that are prone to wild price fluctuations.

Instead, Marvell supplies storage controllers and components used in solid-state drives (SSDs) and HDDs, as well as host storage controllers used in servers. These controllers play a crucial role in enabling storage solutions as they enable crucial functions such as data security and fast data transfer rates.

Additionally, the controllers play a role in boosting the areal density of storage drives. Areal density is an indication of how much data can be stored on a drive. Higher density means that a drive is capable of storing larger data volumes.

Seagate's latest results clearly indicate that the industry is moving toward higher capacity drives. The average capacity of a Seagate hard-disk drive shot up to 2.2 terabytes (TB) last quarter as compared to 1.7 TB in the year-ago period. The storage specialist is moving toward even bigger drive configurations, setting the stage for Marvell to increase sales of its HDD controllers.

Meanwhile, the fast-growing SSD market is proving to be a big catalyst for Marvell. As it turns out, SSDs supplied around 30% of the chipmaker's revenue last year, and it won't be surprising if they play a bigger role in the company's growth going forward. I'm saying this because SSD shipments are forecaste to increase at an annual pace of over 15% over the next four years, according to IDC.

In all, Marvell enjoys solid catalysts in storage that should help it sustain its momentum.

The verdict

There is a clear winner between Marvell and Micron when we look at their valuations. Micron stock has a trailing price-to-earnings (P/E) ratio of just 9.5 and a forward P/E ratio of 6.2. So, Micron trades at extremely cheap levels despite its massive rally over the past year.

Marvell, meanwhile, has a trailing P/E ratio of 40.6, while the forward P/E multiple drops to 17 given the expected growth in its earnings. As such, investors looking for an aggressively growing company at a cheaper valuation should definitely opt for Micron. However, they need to keep a close eye on the developments in the NAND market as it could throw a spanner in the works.