Micron benefits from memory cost increases and shortages; sold-out capacity and long-term contracts support growth even if margins eventually compress.

>> Yeah, the next one is is a very direct beneficiary here and the reason why Nvidia's margins are expected to come down a little bit and that's Micron. Micron, the memory maker.

Now, Nvidia's own CFO said that memory cost increases have exceeded expectations and shortages could persist through fiscal 28. So, that's not a oh maybe Micron is benefiting from it.

It's Micron, SKhing, Samsung, they are benefiting from it today, they will be benefiting from it a year from now as well.

Most of them are already sold out for this year. A lot of them are maybe half sold out for 2027 as well. But a micron and all the other memory makers are definitely going to benefit from or are benefiting right now because we're seeing every single company has said okay capex is increasing.

Part of the reason is because of higher memory prices. Higher memory prices will translate to higher margins for the memory makers and probably also accelerated growth there as well.

Now, as we've said in a previous video, if you missed that one, that would be in the top right corner. Sometimes when you have these types of cycles and moves where companies suddenly see accelerated revenue growth, margins expand, over the short term, that's fine.

But after a while, investors and the market will start to ask questions. How long can this last? Okay, we've heard Nvidia say could last through fiscal 2028, but what about after 2028?

Is Micron still going to have margins of north of 80% by then? Maybe yes, maybe not.

To me, it's more about can Micron grow revenue so much that even if margins are coming down a little bit, more dollars will flow anyways to the bottom line. And I do think that that scenario is more likely than seeing Micron in 2029 or 2030 still with gross margins of close to 85% or so.

Maybe right now in the short term that might not be great for the market, but in my opinion, if you can generate hundred billion dollars in revenue more while taking a small margin cut, there still is way more dollars that are going to flow to the bottom line.

Last thing here is that Micron is not allowed to buy any shares as of right now. the the free cash flow for Micron is increasing every single quarter. But towards the end of this year, calendar year 26, they will be allowed to buy back shares yet again.

Which means if the stock remains super cheap and undervalued, their free cash flow, as I said, is not going to grow by tens of billions of dollars. They can just use it to buy back their shares, which means EPS growth is just going to become better and better and better.

Well, what I think is interesting if you take a step back here, you know, historically memory chips were essentially treated like bulk commodities, right? They had these very, you know, boom and bust uh price swings.

And what we've seen amidst the AI revolution, it has created a a very different environment for these types of businesses. Micron being one of the most prominent examples.

You know, you alluded to this. They've sold out their entire high bandwidth uh memory supply for the year at hundred billion dollar cumulative future revenue through 2030. um is uh spread across over a dozen long-term customer agreements and we continue to see the major tech companies are rushing to secure supply rather than waiting for lower prices, which is also key.

You know, I one of the things I've seen on kind of the bare side of this is that I think about 60% of Micron's revenue still is tied to some of the traditional open market spot pricing.

You know, they're spending billions of dollars to build new fabrication plants. And so there's been this concern that if AI spending slows down, you know, those factories could create a sudden overupp.

I tend to fall in the the camp that I don't think that that's going to be a likely reality anytime soon. I think this is a business that has transformed uh its business model um by ramping up that those high bandwidth memory chips.

You know, they're already shipping out their newest HBM4 memory modules that's going straight into the nextG systems like Nvidia's Ruben platform. They've already seen a lot of their clients have handed over billions in upfront cash deposits as part of that hundred billion, you know, long-term customer contract figure that that Neil and I were talking about.

Um, so I think the big thing to watch is, you know, they're obviously spending close to 30 billion this year alone just to build out factories and stay competitive. I think that this is another business that's investing in growth now for future gains.

Um, and I think that we are seeing that the the growth story that they are experiencing right now as they're capitalizing on the high bandwidth memory boom is going to fuel that long into the future even if in fact some of the growth slows down say 5 10 years from now.

>> I agree. I agree. I think there the market is misunderstanding the growth story here and the fact that yes, maybe this time it can be different. I know famous last words, but but uh as of right now I'm not seeing any cracks in those businesses.