Micron’s Powerful AI Memory Advantage Could Drive a Major Rerating — Transcript

Full transcript

1. 0:00Micron could be turning into one of the
2. 0:03most must-buy AI stocks this year, but
3. 0:06not for the reason that most investors
4. 0:08are watching.
5. 0:09The AI boom is creating what I'm calling
6. 0:11a memory vacuum. Every new generation of
7. 0:14AI chips needs dramatically more memory,
8. 0:17and that demand is locking up the world
9. 0:19supply of DRAM wafers faster than
10. 0:23producers can expand it. The usual
11. 0:25objection here is that memory is
12. 0:27cyclical, and historically, it's
13. 0:29absolutely true.
14. 0:30But AI hardware is moving towards a
15. 0:33roughly 2-year replacement cycle
16. 0:36compared with the old 5-year PC cycle,
17. 0:39and that could make Micron's revenue
18. 0:42more predictable, more structural, and
19. 0:44potentially worthy of a higher
20. 0:46valuation. That's why in this video,
21. 0:49you're going to learn what's creating
22. 0:50this memory vacuum, why Micron may have
23. 0:53pricing power it's never had before, and
24. 0:56how this shift could affect Micron stock
25. 0:59from here. But before we begin, if
26. 1:01you're new to the channel, hello. My
27. 1:02name is Rick Warford. I'm a Wall Street
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49. 1:53Okay, so Micron produces three major
50. 1:57memory technologies. DRAM, and NAND, D,
51. 2:01and NOR. DRAM is the working memory that
52. 2:03we use in servers, PCs, and networking
53. 2:06equipment. NAND D flash stores data in
54. 2:10products like solid state drives and
55. 2:12smartphones.
56. 2:14But then we've got the high bandwidth
57. 2:16memory or HBM, and that's become one of
58. 2:19the most important components inside
59. 2:21modern AI systems.
60. 2:24This is specialized memory built to move
61. 2:26enormous amounts of data to and from
62. 2:29advanced processors at extremely high
63. 2:31speeds. Now, modern AI chips from
64. 2:34companies like Nvidia rely on HBM from
65. 2:37suppliers including Micron to keep their
66. 2:40GPUs fed with data.
67. 2:42Because without enough memory bandwidth,
68. 2:45even the most powerful AI processor
69. 2:47can't perform at its full potential.
70. 2:50That puts Micron in a sort of a critical
71. 2:53position inside the AI supply chain. I
72. 2:56mean, it's not building the GPU, but
73. 2:59it's supplying one of the components
74. 3:01that increasingly determines
75. 3:04how much useful work that GPU actually
76. 3:06does.
77. 3:08AI's next major bottleneck may actually
78. 3:10not be compute alone. I actually think
79. 3:12it might be memory. And that's really
80. 3:14the memory vacuum. Every time the
81. 3:17industry builds a more powerful AI
82. 3:19accelerator, it's going to need more
83. 3:21memory capacity, more memory bandwidth,
84. 3:24and more storage around it. Yet the
85. 3:26supply of DRAM wafers can't instantly
86. 3:29expand to match any of that demand.
87. 3:32So, AI isn't simply creating another
88. 3:34strong quarter for Micron. It may
89. 3:36actually be locking up a growing share
90. 3:39of the industry's available capacity for
91. 3:41years to come. And that matters. That
92. 3:44distinction matters because Micron has
93. 3:46historically operated
94. 3:49in one of the most cyclical parts of the
95. 3:51semiconductor market. Hear me out here.
96. 3:54Historically, strong demand encouraged
97. 3:57memory suppliers to increase production.
98. 4:00But then supply eventually caught up,
99. 4:02prices fell, and profits weakened. Then
100. 4:04producers reduced investment until
101. 4:07demand recovered once again, and the
102. 4:09cycle started all over.
103. 4:11And that history explains why investors
104. 4:13have rarely placed a premium multiple on
105. 4:16Micron. They've learned not to assume
106. 4:19that the peak of memory profits is going
107. 4:21to last. But this cycle looks like it's
108. 4:24developing differently.
109. 4:26Micron's latest quarter wasn't just an
110. 4:27earnings beat, it strengthened the
111. 4:30argument that the memory industry has
112. 4:32entered a new phase driven by expanding
113. 4:35AI infrastructure investment, longer
114. 4:37customer commitments, and structural
115. 4:39constraints on supply.
116. 4:42Micron expects industry demand for both
117. 4:44DRAM and NAND to continue outpacing
118. 4:46supply, and it also expects tighter
119. 4:48supply conditions to extend beyond 2027
120. 4:52into 2028, all driven by accelerating AI
121. 4:55demand and structural supply
122. 4:57constraints. And one of the biggest
123. 4:59reasons is the replacement cycle for AI
124. 5:03hardware.
125. 5:04If AI hardware moves towards a roughly
126. 5:07two-year replacement cycle, memory
127. 5:10demand can refresh far more frequently
128. 5:13than it did during the old PC era. And
129. 5:16that could make Micron's revenue much
130. 5:19less dependent on one short burst of
131. 5:21demand,
132. 5:22and more connected into a recurring
133. 5:25infrastructure cycle.
134. 5:27In other words, AI memory may still be
135. 5:29cyclical, but the cycle itself could
136. 5:32actually become shorter, stronger, and
137. 5:34more predictable. And if that happens,
138. 5:37investors may finally eventually stop
139. 5:40valuing Micron like some ordinary
140. 5:43commodity producer.
141. 5:44That difference is very important. A
142. 5:46temporary shortage creates a brief
143. 5:49earning spike.
144. 5:50A structural shortage supported by
145. 5:53faster replacement cycles and multi-year
146. 5:55commitments,
147. 5:57well, this can create better visibility
148. 5:58into future demand. And that is the
149. 6:00foundation of the higher valuation
150. 6:03argument. But before I get any deeper
151. 6:06into what this could mean for Micron's
152. 6:08valuation, I want to give you a quick,
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163. 6:30Now, the current data center numbers,
164. 6:32they help explain why customers are
165. 6:34trying to secure supply so far in
166. 6:36advance. AI is driving massive growth in
167. 6:40data centers and Micron expects industry
168. 6:43data center DRAM and NAND D uh shipments
169. 6:46in 2026 to more than double from just 2
170. 6:49years earlier.
171. 6:51Why is it? Well, the rise in a genetic
172. 6:53AI is definitely one part of that shift.
173. 6:55So, instead of using only racks filled
174. 6:58with AI accelerators, these newer
175. 7:00deployments are increasingly requiring
176. 7:02dedicated CPU and storage racks.
177. 7:06And these systems need to manage AI
178. 7:08agents, execute programs, and store
179. 7:10rapidly expanding amounts of contextual
180. 7:12data.
181. 7:13This means that data or the memory
182. 7:15opportunity isn't limited to HBM
183. 7:18attached directly to GPUs.
184. 7:20AI can increase demand across the
185. 7:22broader data center market but and
186. 7:24including standard DRAM and NAND D
187. 7:26storage. And Micron now expects global
188. 7:29server shipments to grow at a high teens
189. 7:32percentage rate. And that's up from a
190. 7:34previous forecast for low double-digit
191. 7:37growth.
192. 7:38And that's where Micron's strategic
193. 7:40customer agreements or SCAs become so
194. 7:43important. These are the multi-year
195. 7:45supply agreements that allow
196. 7:47hyperscalers and other customers to
197. 7:49secure the memory capacity that they
198. 7:52expect to need.
199. 7:53And Micron said it's signed 16
200. 7:56agreements that represent roughly 20% of
201. 7:59its DRAM volume and a third of its NAND
202. 8:03D volume over their applicable periods.
203. 8:06And multiple market commentators have
204. 8:07described Micron's capacity of as as
205. 8:10effectively sold out through the end of
206. 8:12the year.
207. 8:13Now, whether investors call it sold out,
208. 8:15allocated, or committed, the basic point
209. 8:18is that customers are competing
210. 8:20for constrained amount of future supply.
211. 8:23And that creates some pricing power
212. 8:26that Micron has very rarely enjoyed. A
213. 8:29hyperscaler built spending billions of
214. 8:31dollars on AI can't afford to leave
215. 8:33those systems unfinished just because it
216. 8:36failed to secure enough memory.
217. 8:38So, customers, well, they commit
218. 8:40earlier, they sign longer agreements,
219. 8:43and they accept stronger pricing to
220. 8:46protect their own build-out plans. And
221. 8:49Micron believes its earnings boom may
222. 8:50actually still have a lot of room to
223. 8:52run.
224. 8:52HBM and DRAM are becoming strategic
225. 8:55components of the AI build-out rather
226. 8:57than products that customers casually
227. 8:59purchase whenever they need them.
228. 9:02And it also helps explain why management
229. 9:05is still optimistic after such
230. 9:07record-breaking performance.
231. 9:09Micron thinks that it can achieve
232. 9:11another record quarter
233. 9:13guiding towards $50 billion in fiscal
234. 9:16fourth quarter revenue at a margin a
235. 9:18gross margin around 86%.
236. 9:21Management also thinks that it can carry
237. 9:23that momentum into the following quarter
238. 9:25after that.
239. 9:27In Q3, Micron's DRAM revenue reached
240. 9:30about 31.3 billion, and that was about
241. 9:3376% of total revenue. And that helped
242. 9:36push total revenue to 41 and 1/2
243. 9:39billion, up 346%
244. 9:41from the previous year.
245. 9:43Operating margin on a GAAP basis surged
246. 9:45to 80.4%,
247. 9:47meaning Micron generating more than 80
248. 9:50cents of operating income for every
249. 9:52single dollar of revenue they took in.
250. 9:55Those numbers make the company look much
251. 9:57less like a traditional manufacturer,
252. 9:59and more like a cloud provider with
253. 10:01software-like margins, right?
254. 10:04And the next wave of demand is probably
255. 10:06going to extend beyond AI data centers.
256. 10:08Micron expects AI-enabled smartphones,
257. 10:11premium PCs, and new consumer devices to
258. 10:14become future growth drivers, all as AI
259. 10:17goes into them.
260. 10:19And Micron also expects industrial
261. 10:21automation, autonomous vehicles, and
262. 10:23robotics to all go to support long-term
263. 10:26demand for memory and storage. And that
264. 10:28brings the story
265. 10:30all the way back for to the stock.
266. 10:33Micron shares have traded between $103
267. 10:36and $1,255
268. 10:38over the last 52 weeks. And during that
269. 10:40period, the stock is up almost 700%.
270. 10:44The stock rallied ahead of third-quarter
271. 10:46earnings as investors anticipated, they
272. 10:48guessed there was going to be another
273. 10:50blowout quarter driven by AI memory
274. 10:52demand, and there was.
275. 10:54And when Micron reported, it exceeded
276. 10:56both expectations for revenue and
277. 10:58earnings. And management highlighted
278. 11:00growing demand for DRAM and HBM, along
279. 11:03with the long-term customer agreements,
280. 11:05all to support future volume. But after
281. 11:08the stock reached some new highs, I
282. 11:11think some investors locked in some
283. 11:13gains. Even after record results, many
284. 11:15investors still see Micron as a cyclical
285. 11:17memory company whose earnings growth may
286. 11:20not last. And I get it, that skepticism
287. 11:23is exactly why the valuation debate is
288. 11:25so important. Micron trades at about 9.2
289. 11:29times earnings.
290. 11:30So, investors are paying roughly $9.20
291. 11:33for every dollar of earnings that the
292. 11:35company generates. That is an incredibly
293. 11:37low multiple for a company growing this
294. 11:40fast. But, the market isn't valuing
295. 11:43Micron based only on its current
296. 11:45earnings. It's
297. 11:47discounting the possibility
298. 11:49that those earnings are near a cyclical
299. 11:52peak. That's the thing. Today's profits
300. 11:55are being driven by tight DRAM supply
301. 11:58and high HBM demand. Major producers are
302. 12:01working to increase memory production.
303. 12:03So, investors expect supply to
304. 12:05eventually catch up.
305. 12:07And they think that when that happens,
306. 12:09pricing power could weaken.
307. 12:11But, the bullish argument is that the
308. 12:13market is probably using the wrong
309. 12:17historical template.
310. 12:19If AI hardware is replaced every 2 years
311. 12:22instead of 5,
312. 12:23demand will renew before the industry
313. 12:26has fully worked through the previous
314. 12:27wave.
315. 12:28You know, if customers they continue
316. 12:30signing these multi-year agreements, a
317. 12:33larger portion of Micron's volume
318. 12:35becomes visible in advance. And if AI
319. 12:38keeps consuming more memory per system,
320. 12:41new supply may actually be absorbed more
321. 12:44quickly than investors expect.
322. 12:47Those three forces could make Micron's
323. 12:50revenue much more structural. Structural
324. 12:53doesn't mean perfectly stable. No, but
325. 12:55it does mean that demand is being
326. 12:57supported by a long-term change in how
327. 13:00computing systems are designed and
328. 13:03replaced rather than by a like a
329. 13:06temporary inventory restocking cycle.
330. 13:09And that distinction is what could
331. 13:11justify a higher price-to-earnings ratio
332. 13:14over time. I mean, the market doesn't
333. 13:16need to value Micron like Nvidia for the
334. 13:19stock to benefit.
335. 13:20It only needs to decide that Micron
336. 13:22deserves something higher
337. 13:24than a deeply discounted cyclical
338. 13:26multiple. And that's the potential
339. 13:29re-rating that I'm talking about. This
340. 13:31is when investors decide a company's
341. 13:33future earnings are more dependable
342. 13:37and they become willing to pay a higher
343. 13:39multiple for each dollar of profit. Now,
344. 13:42if you've been watching Micron, let's
345. 13:44say you like the stock but you think
346. 13:46just too expensive right now, especially
347. 13:49after a massive run. But maybe you'd be
348. 13:51happy to own it 15 or 20% below where it
349. 13:54is today.
350. 13:55Check this video up here because I talk
351. 13:57about how you can sell a put option on
352. 14:00an AI stock you'd want to own and get
353. 14:03paid to wait for it to potentially come
354. 14:05down to your price. But get this, if it
355. 14:07does come down to your price, you get to
356. 14:09buy it but you got paid to buy it as
357. 14:11well. And Wall Street is already very
358. 14:14bullish on Micron. The consensus among
359. 14:1640 analysts, they rate the stock a
360. 14:18strong buy and that rating is held over
361. 14:21the last quarter.
362. 14:22Micron's average score is 4.68 out of
363. 14:25five and it's actually up from 4.62 just
364. 14:28three months earlier. And the price
365. 14:30targets, they suggest is between 52 and
366. 14:33104%
367. 14:34potential upside. Saying analysts are
368. 14:36saying the stock could double over the
369. 14:38next year from here.
370. 14:40And I got to say that is definitely
371. 14:42possible. I mean, the compute shortage
372. 14:44has definitely benefited companies like
373. 14:46Nvidia, Broadcom. But those processors
374. 14:50can't deliver any of their full
375. 14:51potential without enough memory.
376. 14:54As demand for compute rises, that
377. 14:56bottleneck increasingly shifts towards
378. 14:59HBM, DRAM, and storage. And Micron may
379. 15:03be one of the largest beneficiaries
380. 15:05because it's right in the middle of that
381. 15:07constraint.
382. 15:09So, the bullish case comes down to three
383. 15:10connected ideas. First, AI systems
384. 15:13require more memory with each new
385. 15:15generation.
386. 15:16Second, supply constraints and long-term
387. 15:19agreements are giving Micron some
388. 15:20unusual visibility and some very strong
389. 15:23pricing power.
390. 15:25And third, a faster hardware replacement
391. 15:28cycle could make demand more recurring
392. 15:31and justify a higher valuation. Of
393. 15:33course, the bearish case is still very
394. 15:35real. Memory producers will eventually
395. 15:38add capacity. Supply conditions probably
396. 15:41will improve. And if supply catches up
397. 15:44faster than expected prices and margins
398. 15:47could fall. Micron itself expects
399. 15:49industry supply to begin improving in
400. 15:522028. But the size of the current
401. 15:55shortage
402. 15:56suggests that normalization may take
403. 15:58years rather than quarters to complete.
404. 16:01And before any supply fully catches up,
405. 16:04of course, demand is still going to
406. 16:05expand and still could expand again
407. 16:08through more powerful AI accelerators,
408. 16:11AI-enabled devices, and more intelligent
409. 16:13machines. And that's why I don't think
410. 16:15the Micron debate can be reduced to
411. 16:18simply memory is cyclical. Yes, memory
412. 16:21is cyclical.
413. 16:22But cycles can change.
414. 16:24A 5-year cycle can turn into a 2-year
415. 16:27cycle. Very different, right? Multi-year
416. 16:30customer agreements, they're also very
417. 16:32different from short-term purchasing
418. 16:35agreements. And capacity that's
419. 16:37effectively committed well in advance
420. 16:40well, that creates a very different
421. 16:42pricing environment. Micron doesn't need
422. 16:45to stop being cyclical to become a more
423. 16:48valuable business.
424. 16:49It just needs its revenue to become more
425. 16:52predictable.
426. 16:53Its customer relationships to be more
427. 16:55durable.
428. 16:56And its pricing power to last longer
429. 16:59than the market currently expects. If
430. 17:01those changes hold
431. 17:04Micron could be turning from a
432. 17:06boom-and-bust memory supplier into one
433. 17:08of the most important infrastructure
434. 17:10companies in the AI economy. And that
435. 17:13would make today's low earnings multiple
436. 17:16look much less like a warning and much
437. 17:18more like an opportunity. So, if you
438. 17:20think the memory vacuum will persist, AI
439. 17:23if you think AI hardware will keep
440. 17:25refreshing quickly, and if you think
441. 17:26that long-term agreements will protect
442. 17:28Micron's earnings,
443. 17:30then the stock may still have some
444. 17:32meaningful upside despite its enormous
445. 17:34run.
446. 17:35But, if you think that earnings have
447. 17:37already peaked and supply will actually
448. 17:39catch up sooner than later, perhaps
449. 17:42waiting for a better entry point or for
450. 17:44more evidence may be the smarter move.
451. 17:48But, now I want to turn it over to you.
452. 17:49Do you think AI has permanently changed
453. 17:53Micron's memory cycle, or or is this
454. 17:55still just another boom that ends when
455. 17:58supply catches up? And did I get any of
456. 18:01this right? Did I forget anything? Let
457. 18:04me know all of that and more in the
458. 18:05comments below. And while you're there,
459. 18:07if you found the video helpful, don't
460. 18:09forget to like and subscribe because it
461. 18:10really does help others find the video.
462. 18:12It supports the channel, and it makes
463. 18:13sure that you don't miss out on my next
464. 18:15deep dive. Well, that's it for me today.
465. 18:18Want to thank you so much for watching.
466. 18:19Hope to see you again here on YouTube or
467. 18:21in my community. Bye for now.