3 Reasons to Buy Micron Technology Stock

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Micron Technology (NASDAQ: MU) has beaten the stock market hands-down over the past year. The rapid increase in the prices of dynamic random access memory (DRAM) and NAND memory has led to terrific growth in the chipmaker's revenue and earnings.

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But how long can Micron investors rely on the benefits of higher memory prices? Does the company have some other catalyst in store that will help it sustain its outstanding growth? More importantly, is Micron stock still a good value after doubling in the past 12 months? Let's find out.

Gauging the memory market's fortunes

Memory prices have been soaring on the back of a supply shortage. Industry leaders such as Samsung and SK Hynix (who have combined control over 90% of this market) have repurposed their DRAM facilities to make server and smartphone-specific memory products. Not surprisingly, DRAM prices from these two manufacturers are up 30% this month, and it's likely the trend will continue.

Memory market watcher DRAMeXchange forecasts that memory supply will continue to remain tight due to lack of capacity expansion in the near term. This is good news for Micron investors as the company can continue charging a premium for its memory products.

More importantly, Micron is finding ways to enter fast-growing spaces where DRAM demand could boom. For instance, the company has been supplying GDDR5X DRAM to graphics specialist NVIDIA for its graphics cards. This is a shrewd move by Micron as discrete graphics cards shipments could jump to almost 68 million units by 2020, according to one estimate. That's up from 44 million units in 2015.

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Moreover, the jump in discrete GPU (graphics processing unit) shipments is indicative of a potential rise in PC shipments as these chips are used in personal computers, which, in turn, will create more demand for DRAM in the long run. Investors, therefore, can remain fairly confident of an increase in memory demand in the long run. This will boost Micron's overall business as the DRAM segment supplies almost two-thirds of its total revenue.

Moving into the Internet of Things

The impressive thing about Micron Technology is that it has decided to diversify into the Internet of Things (IoT) space through a partnership with Microsoft. The chipmaker has teamed up with the software giant to deploy security features into IoT devices at the hardware level through its flash memory.

Micron's solution allows developers to build security features right into the IoT device without the need for any external hardware, leading to lower costs. Additionally, with the help of Microsoft's technology, Micron's hardware will also enable system administrators to fix the IoT device from a remote location in case of a compromise.

Microsoft's cloud service is growing quite impressively. The adoption of its Azure cloud service by businesses has jumped from just 26% to 43% of late, according to RightScale's State of the Cloud report, while rival Amazon Web Services' enterprise adoption rate improved just three percentage points.

This is good news for Micron as it could pitch its security platform to Azure's growing customer base. More importantly, the chipmaker's initiative of providing cybersecurity solutions to the IoT market could be a big deal as the IoT security space is currently worth $7.8 billion and is forecast to grow at 16.5% a year until 2020.

Attractively valued

Micron Technology sports a trailing price-to-earnings (P/E) ratio of just 14, which is extremely cheap considering the rapid revenue and earnings growth it has delivered in recent quarters. What's more, the industry median P/E ratio of around 23 indicates undervaluation as Micron's earnings are expected to get better in the long run.

In fact, analysts' earnings per share estimates for the next two fiscal years have risen tremendously over the past few months. Micron's EPS over the trailing 12 months was $2.28.

Investors who have missed Micron Technology's terrific run on the stock market can still consider initiating a position as favorable trends in the memory market and its move into the IoT look promising.

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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.