Here’s 1 incredibly cheap semiconductor stock to buy following Micron Technology’s latest results

Micron technology (MU 1.97%) released its results for fiscal year 2024 on September 25. The published data provides a clear indication that the memory chip market is hot due to favorable supply/demand dynamics.

Micron reported revenue of $7.75 billion in its fiscal fourth quarter, a staggering 93% year-over-year growth. Additionally, the company’s operating income margin swung to a positive 22.5% from a negative 30.1% in the same quarter last year, due to the recovery in memory prices. The improvements helped Micron report non-GAAP (generally accepted accounting principles) earnings of $1.18 per share for the quarter, compared with a loss of $1.07 per share in the year-ago period. follow.

The company’s revenue for the full fiscal year rose 61% to $25 billion. Its adjusted earnings were $1.30 per share, compared with a loss of $4.45 per share in the year-ago period. Even better, analysts expect Micron to sustain this impressive level of growth over the next two fiscal years.

MU Revenue Estimates for Current Fiscal Year Data by YCharts

The growth forecast is not surprising, as the memory market has received a tremendous boost from growing interest in all things artificial intelligence (AI). The rapid adoption of this technology has created the need for more memory chips in various applications, from data centers to smartphones to vehicles to personal computers (PCs).

Memory makers like Micron say they plan to spend more money to boost their production capabilities. This is good news for Lam Research (LRCX -0.37%)a semiconductor equipment supplier that relies on the memory market for a significant portion of its revenue.

Let’s look at reasons why buying Lam Research stock could prove to be a smart move following Micron’s impressive results.

Memory capital growth will be a tailwind for Lam Research

Micron’s management pointed out on the company’s most recent earnings conference call that its capital expenditures were $8.1 billion in fiscal 2024. That was a 16 percent increase from the previous fiscal year. The company plans to spend $3.5 billion on capital expenditures in the first quarter of fiscal 2025, indicating a much higher run rate than last year.

For the full year, Micron says it expects “capex to be around the mid-30s percent of revenue range.” Based on the company’s revenue estimate of $38 billion, as seen in the chart earlier, its capex could rise to $13.3 billion in fiscal 2025 (at 35% of the top line). This would be a 64% increase over the previous year.

Lam Research gets 36% of its revenue from the sale of memory manufacturing equipment. This explains why the company’s outlook for fiscal 2025 (which began in July this year) is much better than its performance last year. Lam Research’s revenue for fiscal 2024 fell 14 percent from a year earlier to $14.9 billion due to a glut in the memory market due to weak demand from PCs and smartphones.

The company’s adjusted earnings also fell to $29 per share from $33.21 per share in fiscal 2023. However, improved capital spending by memory specialists such as Micron will generate a solid growth in Lam’s top line in the current fiscal year and beyond.

LRCX Revenue Estimates for Current Fiscal Year Data by YCharts

The improved top line performance is set to filter down to the bottom line as well.

LRCX EPS estimates for current fiscal year data by YCharts

These improvements are not surprising, as Lam points out that memory demand is set to improve due to the growing need for high-bandwidth memory (HBM) chips used in data center graphics cards to train AI models . Additionally, Lam CEO Timothy Archer noted on the company’s August earnings conference call that:

However, as AI use cases expand, we believe inference at the edge will drive the growth of low-power DRAM and NAND storage in enterprise computers and smartphones. Investments in AI-enabled edge devices play particularly well to Lam’s strengths.

These AI-related catalysts are expected to send memory chip market revenue to $260 billion in 2029, up from just $89 billion last year. This explains why other memory manufacturers such as Samsung and SK Hynix are also forecasting huge increases in their investments. SK Hynix’s capex, for example, is expected to rise 75% next year as the company ramps up HBM production capacity to meet booming end-market demand.

On the other hand, Samsung’s dynamic random access memory (DRAM) capital is expected to grow 9% this year to $9.5 billion, followed by a stronger jump to $12 billion next year future. Lam Research noted in its annual filing that Micron, Samsung, SK Hynix and Taiwan Semiconductor Manufacturing they are “the most important customers”.

So increased capital spending by these companies will be a robust growth driver for Lam Research, which explains why its revenue and earnings could grow nicely going forward.

Attractive stock valuation makes it worth buying

With a price-to-earnings (P/E) ratio of 28 and a forward earnings multiple of 22, investors are getting a good deal on Lam Research stock right now given its projected healthy top- and bottom-line growth. These multiples represent a discount to Nasdaq-100 index earnings multiple of 32 (using the index as a proxy for technology stocks).

At the same time, Lam’s price-to-earnings-growth ratio (PEG ratio), which is a forward-looking valuation measure that takes into account the company’s growth potential, makes buying this semiconductor stock a no-brainer.

LRCX PEG Ratio data (before) by YCharts

A PEG ratio of less than 1 means that a stock is undervalued relative to the earnings growth it is set to produce. And as the chart tells us, Lam Research is indeed undervalued on this front. That’s why investors looking to add an AI stock to their portfolios would do well to buy Lam Research before it starts to rally.