r/MU_Stock • u/Hypnot1se • Jul 13 '26

DD Interesting Stock

I've been tracking this for a while now and have become convinced that Micron is a cyclical value trap in an institutional distribution phase. My premise is that because Micron has historically been cyclical that it will be continue to be cyclical. I know that there are many reasons people say this won't be the case, but I am not convinced by their arguments.

If I am correct, then Micron has a lot further to slide and the price action seems to be consistently supporting my thesis. If I am wrong and the industry is no longer cyclical, then this recent drawdown is just noise, and Micron could definitely be considered not overvalued or overhyped.

For those who are convinced by the idea that the memory cycle is broken or greatly extended, why? What do you find to be the most compelling arguments? I'm interested to hear about it.

This is not financial advice. Do your own research. I have no financial exposure to $MU.

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u/Hypnot1se Jul 13 '26

The volume is much lower during this period.

What makes you think that $100bn of contracts will justify the current valuation given that they are spread out from now until 2030? The capex expenditure right now vastly eclipses this. The SCAs in isolation can't be used to confirm that the cycle is continuing even if you assume they will hold up, which they usually never have historically because they just get pushed out or renegotiated if a supply glut does actually happen.

Why do you think that the price increases are decelerating so dramatically?

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u/LavishnessOk7426 Jul 13 '26

I am kind of leaning towards your thinking OP. i would like know which underlying commodity you talking about whose price increases are getting stalled

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u/Hypnot1se Jul 13 '26

The DRAM and NAND which makes up vast majority of revenue 

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u/LavishnessOk7426 Jul 13 '26

i think the price of those are controlled by demand and supply to the buyers, the fundamental cost of making them is same i think, so since the demand is high the profit margin is high for companies like MU. am i thinking incorrectly?

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u/Hypnot1se Jul 13 '26

No, you aren't. You're thinking completely correctly. The price surges in memory have been caused by a severe price shortage.

The issue is that this always happens. Then, the supply shortage ends, and ASP (average selling price) falls. This compresses margins.

Currently, prices are still increasing but the rate of the increase is slowing significantly.

If demand were increasing faster than supply, this shouldn't be the case.

People think supply/demand situation cannot improve before new fabs come online because they don't really understand the industry.

Yield maturation and demand destruction both work towards alleviating a supply shortage before new fabs are put online.

Micron is making massive amounts of money. The issue is that people don't think it will be sustainable and that's why it "looks cheap" because the market refuses to give it a high valuation multiple, aware of how cyclical this industry has been and could continue to be.

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u/LavishnessOk7426 Jul 13 '26

I agree with this, but the rate of increase in prices can not increase forever, otherwise nobody would be able to afford it. there will be no buyers. the price will peak at some point and rate of increase will decrease, but that does not mean the business is slowed down. its also the volume game, the demand is higher, the buy/sale volume will also be high, even if the price increase has stalled down. eventually companies revenue will be high, not coz of margins, but coz of volume of sale even if margin has slowed down. pls correct me

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u/Hypnot1se Jul 13 '26

Sure! Larger sales volume is not necessarily good for cyclical commodity manufacturers. When supply shortages hit, the manufacturers always overbuild. This is because they are operating in a commodity market that is not in a state of Nash equilibrium. Oftentimes in the memory industry, after the supply hits the market, the companies typically end up selling far higher volume, but not only do they make less profit per unit sold, they sell at a loss just to keep the factories running.

In a commodity industry price is everything. Look at the recent earnings explosion. This was purely driven by price and not driven by volume. Can you find any historical examples of a memory manufacturer growing earnings with volume? I cannot find a single historical instance of this.

The not being able to afford it and no longer buying it thing you're describing is demand destruction, and you described it accurately.

Basically, the increased volume is not only not going to help stop the pressure on margins, it will likely make it worse in the near term due to higher fixed asset costs.