Shares of Micron Technology (MU -4.47%) have outperformed the broader technology sector over the past six months by a nice margin, which is impressive considering that the tech sell-off has knocked the wind out of the sails of many big names.
The memory specialist has gained momentum in February thanks to industry-wide developments that could give Micron's growth a shot in the arm, as well as an improvement in investor confidence in the technology sector following a series of solid earnings reports.
The good part is that Micron stock is still very affordable from a valuation perspective despite its rally over the past six months. As of this writing, it is trading at just under $94 a share and could be an ideal pick for investors looking to add a tech stock to their portfolios at under $100. Let's look at the reasons why.
Micron Technology could gain more market share
The dynamic random access memory (DRAM) market produced 73% of Micron Technology's total revenue in the first quarter of fiscal 2022 for the three months ended Dec. 2, 2021. The segment's revenue was up 38% year over year, which led to 33% year-over-year growth in the chipmaker's quarterly revenue, bringing the total to $7.69 billion.
A combination of strong pricing and shipments sent Micron's bottom line soaring as it reported $2.16 per share in adjusted earnings during the quarter compared to $0.78 per share in the prior-year period. The solid year-over-year growth in Micron's revenue and earnings wasn't surprising given the combination of higher volumes, strong pricing, and market share gains that the company enjoyed.
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Micron Technology reportedly controlled 25% of the DRAM market in the third quarter of calendar 2021, up by 4 percentage points over the prior quarter. It won't be surprising to see Micron gain more market share in the DRAM space as the company claims to have established a technology lead over rivals.
On the company's December earnings conference call, Micron CEO Sanjay Mehrotra said, "With the successful ramp of 1α DRAM and 176-layer NAND products across major end markets, we are several quarters ahead of the industry in market deployment of these leading-edge process technologies."
Even better, Micron aims to start the volume production of DRAM chips based on the extreme ultraviolet (EUV) lithography process from 2024. Mehrotra believes that the integration of EUV will help Micron "maintain DRAM technology leadership for many years to come."
Third-party estimates point out that Micron's 1α DRAM process boasts of the industry's highest DRAM density so far. This means that Micron can pack in more memory into a single chip module, which allows it to produce more powerful chips while reducing production costs at the same time. Given that Micron started ramping up the production of 1α DRAM last year and the company is enjoying cost reductions thanks to the increasing adoption of these chips, it is not surprising to see its margins increase rapidly over the past year.
MU Gross Profit Margin data by YCharts
Micron seems on its way to corner a bigger share of the lucrative DRAM market as it continues to ramp up the production of memory chips based on the advanced 1α DRAM process node. This could be a big deal for the company in the long run, as the global DRAM market is expected to generate $174 billion in revenue by 2026, according to third-party estimates.
A solid stock to buy right now
Investors looking to buy a hot growth stock at a cheap valuation should consider scooping up shares of Micron Technology right away. That's because the stock is trading at just 14 times trailing earnings and 9.8 times forward earnings, which is a massive discount to the NASDAQ 100 index's price-to-earnings ratio of 34.
Investors are getting a great deal at this valuation, considering that Micron's earnings are expected to clock a compound annual growth rate of 24% for the next five years. In all, Micron's growing dominance in the DRAM market could easily help the company maintain its high pace of growth for years to come, which is why buying it at its current valuation looks like a no-brainer.
