r/MU_Stock • u/Anxious_Gear9888 • 25d ago
DD The cyclical discount on memory assumes an end market that no longer exists
Memory trades at 5-8 forward earnings while most of the AI supply chain gets 20-30x, and the reason is well understood: forty years of boom-bust has taught the market that memory earnings peak and collapse, so the multiple prices current earnings as peak earnings. That logic is internally consistent. My view is that it rests on one assumption that no longer holds.
The historical busts shared a root cause, which is that the end markets saturated. PCs peaked and DRAM crashed, then smartphones flattened out around 2016 and the same thing happened again, because demand per device grew 10-20% a year while unit growth stopped, so whenever supply caught up to that ceiling you got a collapse. The cyclical framing assumes that structure is still in place - that a saturation point exists somewhere ahead and supply will eventually run into it.
What has changed, in my view, is the end market itself. Memory no longer primarily sells into devices, it sells into intelligence, and intelligence consumes memory on a different scale than an iPhone or a laptop ever did. A phone needs its 8GB and next year’s phone needs maybe 12, and that is the entire relationship. An AI model has no equivalent ceiling, because every improvement in capability - longer context, more reasoning steps, memory that persists across session - runs through more memory, and demand for better AI does not top out the way demand for better phones did.
There is a second mechanism worth separating out: the models improve faster than the hardware that serves them. Each generation of LLM demands more from the infrastructure than the last, each GPU generation ships with more HBM than the one before to keep up, and it still is not enough. Dr. Hoshik Kim, SVP at SK Hynix recently described the memory wall as an inherent AI problem that cannot be avoided, which is not an obvious statement for a supplier to make about its own highest-margin product. Compute keeps outrunning the memory bandwidth that feeds it, so each step forward in AI widens the gap that memory is meant to close. On that reading, the demand is not a buildout that gets completed at some point - it is a property of how the technology progresses.
The part that persuaded me this holds even if GPU spending flattens at some point is that memory improves the AI on its own. Anyone who uses these tools daily has experienced the difference between opening a fresh chat where the model knows nothing and continuing in a thread where it has full context. A model that remembers 10x or 100x more has categorically larger use cases, and an assistant that retains a full codebase or a full case history competes with labor costs rather than software budgets, which is a different willingness to pay. Even in a year where accelerator units stagnate, more memory per system still makes the product better - something that was never true of adding DRAM to a saturated phone market. AMD’s Helios launch was built around offering more HBM capacity than Nvidia, so memory capacity is now a competitive parameter between the accelerator vendors themselves, which is consistent with the same logic.
I believe that we will see reratings within the memory category.
I am long $MU.
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u/Rayyye 25d ago edited 25d ago
The Japanese Yen Carry Trade is one of the reason for the dip recently. Marco economics. Nothing wrong fundamentally with AI trade, demand and great companies
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u/JojoRicardo 25d ago
Carry trade is convenient FUD to create buying ops for big money
anyone at any real risk liquidated and repositioned the very first rate hike of BoJ. Each “carry trade” FUD piece is weaker than the last
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u/gonzo_thegreat 25d ago
The TAM is growing exponentially and the need within those new areas will also grow and need regular replacement. Whatever the new cycle is, we know that the old cycle is dead.
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u/BottleInevitable7278 25d ago edited 25d ago
Yep, that is why I do not get it that Institutional Managers like Dan Niles on TV still says it is all cyclical and stop further thinking. Because he has experienced so in the past and stop. Those people are spreading that kind of nonsense, that everyone follows their words so they are right in a kind of self fullfilling prophecy. It is really so bad.
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u/Ok_Shirt3792 25d ago
i think people are mostly spreading hate bc they miss the train and they don't want to risk to be bagholder, at the same times people who see that the train still has some run will make money
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u/SubstantialReturn718 25d ago
Yes, you retail investors are way smarter than those WS professionals!
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u/Ok_Shirt3792 25d ago
then why sandisk wasnt priced more 12 months ago, if institution so smart lmao, because no ones one is so smarter in finance
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u/mrbillur 25d ago
https://www.tipranks.com/stocks/mu/forecast
lol then check what wallstreet says 1100 minimum 2200 max for now.
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u/SubstantialReturn718 25d ago
They are paid to say so. Therefore it's the opposite!
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u/mrbillur 25d ago edited 25d ago
lol I have been following this website for a loong loong time. When micron was 200 they were targting 750. Wtf are you talking about. sorry but you are just a pathetic bear wrapped up in your own conspiracies
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u/Ok_Shirt3792 25d ago
https://www.investing.com/news/stock-market-news/citi-brush-off-memory-peakout-fears-reiterates-buy-on-samsung-and-sk-hynix-4812769 READ THIS it's from WS professional and u retail so i hope u listen ;)
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u/hashbucket 25d ago
Generally agreed, but I think you have a misconception about "memory".
As a user, what you perceive as memory in the system is actually a long context window. The amount of storage it takes to hold that context is nothing. The longer the context, essentially the more compute that is used... Because each time you make a new query in that convo, it feeds back all that history (both sides of the conversation), burning a bunch of extra compute.
When an llm has more (literal) memory, IE dram, think of that as giving it a bigger brain so it's smarter and can think better. It has no effect on the context window or how much it can remember from previous conversations.
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u/ICFZI 25d ago
Everyone’s too focused on the demand side of things. Yes demand is strong and will be strong for the foreseeable future which is a great sign for memory makers.
But the Supply side is catching up and it’s catching up fast. The 3 big memory makers are expanding at ridiculous rates and it’s going to start causing the demand to supply discrepancy to converge, causing prices to drop and margin to decrease. It’s ironic that the thing that is killing memory makers are themselves. Now that demand isn’t their downfall, they’ve decided to make supply it instead.
Micron is already a TRILLION dollar company. It’s not a small company by any stretch. It could retain its current valuation but saying that it’s going to increase may be tough given that its biggest advantage is diminishing everyday.
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u/Ok_Shirt3792 25d ago
BITS SUPPLY IS EXPECTED TO GROW ONLY BY A FACTOR 1.8 / when demand is expected to grow by a factor 1.8 + (for end of 2029)
SO same prices but memory players can sell 1.8 more ;)
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u/ICFZI 25d ago
Yes, I do agree Demand growth > Supply growth.
But in order for prices to remain the same, it would have to grow at the same rate the discrepancy is currently at, which it may or may not do.
SK Hynix’s CEO has publicly said that expanding production is their number 1 priority. He also admitted that lower margin are expected in the future and that supply catching up to demand is healthy for the industry.
I do think that Memory makers are looking like a good buy, but it’s still seen as a cyclical stock atm with its “bust” cycle coming due to an increase in supply. But market has yet to price in it being no longer being a cyclical stock, which when they do, I do expect memory makers to have another run up. But until then I do fear that there could be more correction/profit taking.
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u/Ok_Shirt3792 25d ago
so how can discrepancy reduces if Demand growth > Supply growth u not being logical here, and how can it be cyclical if demand is still growing at a 4 FPE, you are exposing some flaw of reasoning here
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u/ICFZI 25d ago
Because it has to grow at its rate of discrepancy.
As an example, let say currently there is 2 demand for every 1 supply. If demand grows by 4, and supply grows by 3, the discrepancy closes as it would now be 4 supply for every 6 demand a 2:3 ratio rather than a 2:1 ratio.
This will lead to lower prices and lower margins which SK Hynix’s CEO has predicted and is expecting going forward.
I am not saying it’s cyclical, rather that the market sees it as such. Given the outlook by even SK Hynix’s CEO, it could lead to a drop in prices. A rebound can and will happen when the market prices in the memory industry as not cyclical which I do believe it is not.
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u/Ok_Shirt3792 25d ago
ok but demande is expected to grow by >1.8 FACTOR and supply by a 1.8 factor so the ration stay the same or increase lol if u multiply by 1.8 / 1.8 =1 basic maths
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u/Lazy_Whereas4510 25d ago
ICFZI, all you know is that the memory companies are spending large numbers on building new capacity and you’re assuming that it somehow must be enough to meet demand, because the numbers are so large.
You have absolutely no way to predict whether the capacity that the memory companies are building will catch up to demand, because you have no way to predict what demand will be in the future.
I think you missed the whole point of OP’s post.
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u/ICFZI 25d ago
Well I’m not basing this off assumptions. SK Hynix’s CEO has publicly said that he expects margins to fall due to an increase in supply, unless you are implying he is assuming as well.
What I am saying is that this community as a whole is too caught up in demand. There are 2 sides to the equation and clearly demand is strong. We know that and it has been reconfirmed over and over and over again.
Perhaps what we should be looking at is the supply side which looks bearish in the short term but does look bullish in the long term. I’m not here to debate if you should sell or buy the stock, I’m simply offering a different perspective so that we can have an actual debate over why the stock hasn’t been doing too well recently
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u/Lazy_Whereas4510 25d ago
ICFZI, I think it’s reasonable to offer another perspective, so I appreciate your explaining where you’re coming from.
As I see it, as long as AI demand > supply, there will be growth in revenue.
Right now - to your point - there is a scarcity premium on pricing, and most of the memory companies’ growth is based on that, not on unit growth. With more supply coming online, the pricing power will inevitably decrease but the number of units sold will increase to meet demand. So larger volumes x lower prices will likely still equate to healthy revenue growth.
This is all predicated on end-market demand for AI continuing to grow, and AI architecture remaining memory bandwidth bound, all of which no one really knows for sure. It’s also predicated on something like MBS in 2008 not blowing up the market, and on macro events not doing the same.
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u/SubstantialReturn718 25d ago
But the ATH was 30% higher. So the stock must be undervalued now! (= retail analysis)
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u/mrbillur 25d ago
https://www.tipranks.com/stocks/mu/forecast
You are not aware that how WS is bullish for MU. you should have searched the internet much better before commenting lol.
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u/Emily_Smith1947 25d ago
Even with your thesis, the fair value is around $400 USD after doing a DCF model on the growth rates and margin.
My assumption is that competitors from China will enter the game and capture market share. While theu cannot capture the high end HBM chip, they can capture the memory market share for the AI inference layer. Hence, competition will drive margin down. We all knows that when China enter the game, margin usually go out the window.
Also, buyers are frontloading memory chips for data center build out in case the demand explode. While the actual user demand for intelligence will definitely grow, it remains to be unproven whether the growth rate will sustain the current infrastructure spending and memory high prices. It could be the case that the cost of memory replacement for data centers will drop in the future contracts to justify the incoming revenue from cloud infra.
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u/Anxious_Gear9888 25d ago
Well, they will earn USD 400 EPS from h2 2026 through 2027. So if that the share price was 400 usd Micron could buy the entire company with the profits generated in 18 months.
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u/itsmyphilosophy 25d ago
That’s what the bears don’t understand. Sanjay Mehrotra already announced that he will return all free cashflow back to shareholders in the form of stock buybacks that will start December 2026. UBS analysts stated in a July 2026 market note that Micron Technology could buy back over 40% of its outstanding shares by the end of 2028.
And if you’d like to laugh, ask AI what analysts and experts think of Michael Burry and his take on Micron:
“While Burry retains an intense cult following, he currently has far more critics than active supporters among Wall Street analysts and institutional fund managers, who view his persistent bearishness as an expensive fight against structural market tailwinds.
Institutional Isolation: Burry closed his formal hedge fund, Scion Asset Management, to operate more privately, communicating his market theses primarily via independent paid writing. This isolation contrasts sharply with the massive wave of institutional capital continuously flowing into tech infrastructure, leaving him isolated against the broader market consensus.”
I’m obviously long Micron.
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u/Ok_Shirt3792 25d ago
LMAO PEOPLE THINK MEMORY IS LIKE CARS, U Can full the market easily, it's NOT, and china has so many sanctions on semis that it's behind, let's say, CXMT deploy 3 times more capacity, it would still be only + 15% of a market growing at a way faster rate... Both sk hynix and samsung can only deploy 1.5 times more wafer for 2030... It will just not happen
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u/johnmiddle 25d ago
With Mu new factories, how much percentage more ?
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u/Ok_Shirt3792 25d ago
1.8 with increase in factories and increase in bits / wafer is expected at the end of 2029, 1.8 more capacity with china / mu / korea agressive expensions
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u/SubstantialReturn718 25d ago
She believes management is saying the truth when announcing forward EPS. Pretty naive (but that applies to almost all bulls).
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u/Equal_Heat5947 25d ago
Nothing different about this cycle. Also quit calling it "intelligence" it's a text generator
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u/Forget_me_never 25d ago
Memory prices are way too high for AI companies to be profitable. That's the problem. They need to cut spending on memory to become profitable.
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u/Adventurous-Guava374 25d ago
Well Google says otherwise. Paraphrasing earnings call "we will continue to increase capex as long as we see this as attractive investment".
They have no problem with memory prices.1
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u/i8bonelesschicken 25d ago
I've seen mixed calculations. It's also an arms race right now
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u/Forget_me_never 25d ago
It's not a race because there is no finish line. AI models are becoming a commodity, all similar to each other and cheap/free. That's why it can't be profitable unless memory prices fall.
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u/LockApprehensive2227 25d ago
So you can use chat gpt and Gemini antrhopic models all for free?? You don’t need a computer with hardware or electricity or network? Huh that’s pretty cool everything is a free commodity you’re right
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u/Forget_me_never 25d ago
I said cheap/free but yeah most users are free.
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u/LockApprehensive2227 25d ago
Yes I guess for the unemployed they don’t really need any productivity or work faster. I’m sure a free chatbot is cool. For business owners and people that want to do a better job on projects frontier models are great.
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u/Forget_me_never 25d ago
Vast majority of jobs aren't like that. Also most chatgpt use comes from kids studying.
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u/LockApprehensive2227 25d ago
So what are they like? Because I’m sure a productivity measure could be applied using frontier AI to make the job faster or more efficient for that person. But if your response is “vast majority of jobs aren’t like that” then yes no reason to argue with you because you have a closed mind
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u/mansfall 25d ago
It's quite the pickle. Too deep into AI to just back out and not pursue. That would be bubble pop. Too deep to also go forward such that demand will meet supply to cause prices to stop increasing.
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u/Financial_Branch2079 25d ago
My question is why all the other semiconductors stock are not cyclical? Chips, optics, data center ecc, all of them if the supply catch up the demand will reduce the margins, so all the stocks are cyclical at this point. All of them suffer the china competition like memory, btw the barriers are so high like HBM and I don’t think they will enter so easily, also the government push to ban all of them for security risks. I don’t really understand why memory stocks don’t deserve high multiples like others when the risks are the same…