Micron Technology, Inc. (NASDAQ: MU ) soared after reporting quarterly earnings that easily exceeded estimates. Even after the current run-up, with shares above $40 a share, the stock is trading at a low valuation. Chances are good that as long as the business is strong, MU stock will continue its climb higher.

Quarterly Earnings

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Micron reported strong revenue, helped by its NAND and DRAM business. The company earned $2.02 a share, $0.18 per share more than consensus. Revenue rose a whopping 90.7 percent over last year. The EPS amounts to an annualized rate of $8.00 a share. Even if one assumed zero earnings growth in the next three quarters, MU is trading at a forward P/E of five times. Investors need only look at the gross margin figure to understand a super cycle in computer chips is underway. Gross margin rose to 51 percent compared to 18.6 percent year-over-year. Once 3D XPoint production ramps up, profitability may even exceed management’s own assumptions.

Looking ahead, the company set a revenue guidance as high as $6.5 billion for the next quarter (Q1), gross margin of up to 54 percent, and EPS in the range of $2.09 to $2.23 a share.

NAND, a key part to solid-state drives used in smartphones and computers, accounted for 30 percent of total sales. The smartphone refresh from Apple Inc. (NASDAQ: AAPL ), Samsung, Xiaomi and other big names should only drive NAND demand even higher. Memory demand will also rise as suppliers add more DRAM per device. Apple’s iPhone X stands out as a monster of phones that will have plenty of memory and storage. The device comes in a 3GB memory configuration with either 64GB or 256GB of SSD storage.

PC Refresh Underway

Intel Corporation’s (NASDAQ: INTC ) chip refresh in the desktop market, code-named Coffee Lake, and the new line of CPUs from Advanced Micro Devices, Inc. (NASDAQ: AMD ) will drive both DRAM and NAND demand higher. New computer systems require more RAM compared to PCs from past refresh cycles. Even though Microsoft Corporation’s (NASDAQ: MSFT ) Windows 10 runs efficiently with less memory, users generally add more, along with SSD storage for fast disk access, to get the best system running. The net impact of AMD’s Ryzen and Threadripper release and Intel’s chip update is more positive pricing pressure on DRAM and NAND.

Near-Term Headwind

On October 10, Micron announced a $1 billion stock offering, a move that is somewhat negative. The $476 million in net proceeds from the stock sale strengthens the company’s balance sheet. It cuts the company’s debt, through the $438 million Senior Secured Note (at 7.5%) redemption. The remaining cash gives the company more liquidity and options to buy back debt later. But Micron is signaling that it views its share price as close to fair value. On closer inspection, Micron is retiring a secure note that has an expensive interest rate. Its healthier balance sheet, strong business and expected growth ahead imply Micron may raise debt at lower rates. This will lead to better free cash flow for the company for the future.

Takeaway on MU Stock

Micron’s stock looks poised to continue its march toward $45 a share. Even at that level, the company trades in the single-digit forward multiples. MU stock’s low valuation is expected because the market wants to discount the risk of the semiconductor cycle slowing. In the near term, Micron’s business is healthier than ever. It just cut its interest owed for $1 billion debt by redeeming one of its bonds. If management pays off its debt, not only will the company be debt-free, but it will be net cash flow positive. That makes MU stock a very compelling value investing idea.

Disclosure: Author does not own any of the stocks mentioned and used finbox.io to model the $45 price target on Micron.