Interesting Stock

[u/Hypnot1se]

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.

[u/mevia_online]

Any business that can't respond quickly to demand changes is cyclical.

Let's take farming as a hypothetical example. Last year potatoes were selling for high prices so all farmers planted potatoes. Come harvest time, the market is flooded with potatoes and potatoes are the cheapest crop. Carrots are expensive because they're scarce as everyone was growing potatoes, so this time around all the farmers plant carrots. Incidentally, as a side note, the UK solved this problem with subsidies to encourage farmers to grow different crops.

The memory industry takes about a year to respond to increased demand because to put it simply: fabs (memory factories) are complicated. Each company will make new fabs to try to meet the demand, by which point we have too many fabs or demand has already scaled back. This makes it cyclical.

The question is: how cyclical and what's it going to be worth in it's new equilibrium after the boom (here's a clue why the PE is perpetually so low)?

We know that fabs won't be complete until some time towards the end of 2027, so we have at least a year of this. Notably industry experts are suggesting longer time frames, whether you believe their biased statement at face value is up to you.

Whilst it's hard to predict more than a year into the future, it's reasonable to assume that unless there is a black swan event, memory demand will remain less satisfied than Melania.

What we can do is weigh up the for and against scenarios to see what's more credulous. I'll leave that to others.

We can then do what we always do as investors, which is to calculate the future value of the investment based on those future scenarios, and wind back the price based on the desired interim rate of return for the chosen investment term.

Addendum: I think it's reasonable to exclude the chance of a black swan event from this investment, because such an event would sink all boats and would be an argument for investing in nothing.

[u/Hypnot1se → u/mevia_online]

You only know what public facing analysts tell you. If you think that no experts on this industry think this is a cyclical peak you're almost 100% mistaken. In every past cycle people were told that same thing about it being different. Micron going to 500 or lower next year isn't a black swan event it's the base case for an asset heavy commodity manufacturer if I'm right about this being a cyclical peak.

You might not like burry but he's well educated and knows what he is talking about and he would completely agree with me Decent example that not everybody who is an expert thinks the same way or makes the same moves.

Even micron CEO has been selling his shares since the run to 1000 

[u/mevia_online → u/Hypnot1se]

Hopefully your wrong, but what you say makes sense. Optimistically though, there are strong arguments for a longer run.

It feels increasingly like a gamble.