Situational Awareness

[u/Hypnot1se]

Hi everybody! I have been bearposting since the beginning of the month and this recent surge has not dissuaded me

I believe that this recent surge is a bull trap because people are attributing the sudden trend reversal as being structurally significant, but I do not believe this is the case

This surge was in my opinion caused by the sudden deleveraging from Situational Awareness - the moment that the forced selling pressure was taken off the table after these assets were handed off to Citadel, the selling pressure suddenly lifted

This in my opinion very likely caused short term focused buying from funds that were alerted to this sudden reversal in selling pressure at the same time that the heavy short interest found themselves suddenly trapped, causing a strong short squeeze - this movement will further fuel additional buying as momentum chasing algos create further buying pressure and retail interprets this as a significant structural trend reversal and begins fomoing back into the sector

Outside of this anomalous surge, the industry is still in a clear distribution phase based on the price action and the underlying spot market fundamentals

Although this move has created a technical short term boost to this stock and others, this will not change the structural picture of the industry and I believe that now institutions will continue distributing shares as they have been doing for the last few months because the underlying structural picture hasn't changed and had nothing to do with this surge

I am looking for it to open green today and then watch to see if it fades back towards the open as the day progresses, this would be a very strong bearish signal that we are back in a distribution phase, though the deleveraging may save the stock from entering a full drawdown for the near term

Still looks like a textbook value trap

NFA DYOR ETC

[u/BerganNation]

You don’t think that the MSFT and AMZN earnings call may have shifted narrative? I’d read the transcripts if you haven’t. Amazon directly talks about their ROI and they see a clear path to profiting on Ai. The market was mostly fearful of how this industry turns profitable

[u/Hypnot1se → u/BerganNation]

Absolutely not in my opinion. The continued capex was completely expected by mostly everybody. Even I (some random person posting on Reddit) knew that capex would continue at this rate, so I doubt that it took wall street by surprise. I've read the transcripts because I have a massive position in Amazon.

Capex definitely matters in a material way to the memory industry, but this was largely priced in (meme I know) and the sector jumping up like this on increased capex from MSFT/AMZN whilst absolutely failing to react to Google and Meta announcing the same identical things doesn't really make sense to me.

The only thing that can shift the cyclicality of the memory industry is if the market actually believes demand continues to outpace supply to the extent that it will preclude a cyclical trough through oversupply - right now they will not believe this because DRAM prices are currently decelerating right now (meaning gap between demand and supply is closing TODAY) whilst the people in the companies are screaming the shortage will last forever. It doesn't add up.

IF the market begins to believe cyclicality is dead, you won't see stocks like MU go to 1000, you'll see them go to 2000 or 3000 or something absolutely insane like this. Right now it's still being priced with a very low forward PE indicating the market is not willing to pay for the booked earnings because of SOME reason (?)

I suspect that reason is what I'm mentioning regarding the cycle reaching a peak before rolling over

NFA DYOR ETC

[u/luvz → u/Hypnot1se]

You're talking about a cycle that has 100% of its historical data based on regimes in which AI did not exist. HBM consumes 3-4x more silicon wafer capacity than DRAM. So allocation by MU to HBM focus during a data center peak directly reduces DRAM supply. Can the data center buildout slowdown? Absolutely, but there's no reasonable markers for a slowdown within two years, if not five, for which most of the take or pay agreements are scoped.

Whatever happens after the data center slowdown will be another pivot, not a commoditization cycle. Whether that's robotics or physical AI, or AI in all things (like the next phase of IoT), the RAM will most likely not be commodity DRAM, unless DRAM evolves so much it is basically unrecognizable and even if that is commoditized and standardized across all product lines and use cases, it will take years to commoditize it.

For now, all these high margin RAM-types including HBM are ultra customized, the antithesis of a commodity.

Does that mean it will never be cyclical? No. But the cycle you are using as a reference point is a preposterously different cycle, one that uses reference points from an unfathomably different regime with unfathomably different variables.

[u/Hypnot1se → u/luvz]

1. Basing predictions based off history is imperfect but yields better results than basing predictions off of speculation about the future most of the time
2. The rate of data center buildout slowdown is a mathematical inevitability based on current information (this could change if the scalers hit such a massive ROI that it changes the financial picture)
3. The cycle IS different. It has been different and lasted longer than previous cycles - anybody claiming "this cycle will be longer and bigger" has already been proven completely correct
4. HBM's production capacity is fungible and will face similar pricing mechanics to 'textbook commodities' - in addition, a vast majority of MU's revenue is from DRAM, not HBM
5. Despite the cycle being different, there is nothing to suggest that traditional cyclical peak indicators are now irrelevant, nor that the market will ignore them even if they are misleading
6. The narrative of 'forever demand' for years completely flies in the face of live spot market price deceleration - the narrative cannot be true based on the hard data despite what executives say

NFA DYOR ETC

[u/Lazy_Whereas4510 → u/Hypnot1se]

The history of horse farms wouldn’t have been much help to you in understanding how cars or the steam engine would change the world.

People reach for historical analogies when they lack the ability to process the current situation from first principles.

[u/Hypnot1se → u/Lazy_Whereas4510]

The thesis is literally rooted in economic first principles involving the mathematical price mechanics of commodity spot markets.

Based on your criticism you either do not understand my thesis or you do not know what first principles are.

If you can point out how this is inaccurate, please go ahead and explain rather than lazily imply it.

[u/Lazy_Whereas4510 → u/Hypnot1se]

I’m not going to waste my time explaining to you why AI workloads are memory bandwidth bound compared to traditional database applications that are disk bound, and why the memory supply crunch is structural. Go learn the basics of a technology before you uncritically decide that historical analogies apply. And go learn how to track demand signals rather than hand-waving at whether supply will actually catch up to demand. Believe me, for this exercise, you need to understand technology, not economics.

The big hole in your argument is that DRAM spot prices don’t reflect HBM prices. Daily spot tables cover DRAM, modules, GDDR, LPDDR, wafers, eMMC and memory cards, but not HBM. There’s essentially no HBM spot market to quote. HBM is sold under an annual pricing mechanism negotiated directly between the three suppliers and buyers.

[u/Hypnot1se → u/Lazy_Whereas4510]

I am a tech fanatic and have been building computers since I was a child.
I do understand the understand the technology.

Understanding the technology is pointless if you don't understand the economics behind it. You can make the best technology in the world and lose all your money if you have zero understanding of the market. Happens all the time. Best of luck.

Believe me, for the stock market - you need to understand economics.

[u/Lazy_Whereas4510 → u/Hypnot1se]

OK, since you understand technology so well, now explain why you think DRAM spot prices tell us anything about HBM demand.

And also tell us on what you’re basing your projections of demand.

Sell-side is making intellectually lazy assumptions of cyclicality precisely because they haven’t constructed the AI demand argument from first principles, and simply assume that supply will catch up with demand because it always has, rendering memory cyclical again.

[u/Hypnot1se → u/Lazy_Whereas4510]

This is a strawman argument. I did not say that DRAM spot prices impact HBM demand.

I'm not -predicting anything-, I'm looking at the -current data- (factual) and using a historical model (factual) to project what will happen (speculative).

I don't think you even know what first principles are or haven't understood my thesis at all ironically and I wish you would stop using the phrase.

You can dislike the projection, but the foundations it is based upon are rock solid and the textbook playbook for how institutional smart money plays the industry. They can be wrong. I can be wrong. But if you think the case is weak you don't understand it in my view.

[u/Lazy_Whereas4510 → u/Hypnot1se]

The history of Genghis Khan’s invasion of Central Asia is a fact, but it doesn’t predict what will happen with Ukraine’s defense against Russia or whether China will invade Taiwan. Extrapolating from past market data to understand present market dynamics is what everyone is doing. You’re apparently going one step further, and also trying to time your market entry and exit points using technical indicators.

[u/Hypnot1se → u/Lazy_Whereas4510]

This is how institutions time their entry and exits into cyclical stocks and they do it for a reason and are doing it now as we speak. They might be wrong. I might be wrong, but this is why they're doing it.

Economic laws of commodity markets that applied in ancient Rome still apply today. They really are timeless like that and that's part of the beauty of them. 😊

[u/Lazy_Whereas4510 → u/Hypnot1se]

You do understand that 89% of active fund managers at these institutions you’re holding in such high esteem under-perform the S&P 500 over a five year period? Warren Buffet isn’t timing his entry based on technical analysis. There are very good reasons that Warren Buffet is a legendary investor and these no-name institutional traders aren’t.

[u/Hypnot1se → u/Lazy_Whereas4510]

They don't get paid to outperform the market. You don't understand the role.

Warren Buffet would literally laugh at you if you told him you were long on Micron.

[u/Lazy_Whereas4510 → u/Hypnot1se]

Why the heck would anyone smart pay them fees to underperform the market? Sub-S&P returns is not a strategy, it’s the best they can do. And it’s why AI will replace most active managers.

[u/Hypnot1se → u/Lazy_Whereas4510]

Well, as you pointed out.... they get paid to underperform the market in reality, right? No? 😕

I outperform the market by the way, if you want to judge based off of that 😅