Deep Sail Capital
Founder & CIO of Deep Sail Capital, Long/Short GARP, Quality/Growth/Micro-Caps
Memory's high margins are less durable than those of Nvidia or AMD because memory is a perfect substitute across suppliers and their chips are not. Memory margins have also risen far more than those names', so while chipmakers may eventually see some compression too, it should be smaller than in memory. x.comÂ
Memory makers' earnings look unsustainable, so their low multiples are justified: in four years their earnings could be 75% below next year's, unlike oil companies'. Either prices stay high and hyperscalers run out of capital, cutting volumes, or prices fall sharply and the margin pool shrinks even if volumes hold. Clients cannot sustain such earnings extraction beyond a few years. @EhrmantrautCap_ notes SK hynix and Samsung trade under 4x FY2027 earnings versus 9-16x for oil majors. x.com x.comÂ
AMD is among the squeezed price takers in the memory shortage, paying the same memory bill as Nvidia with a fraction of its pricing power. It is already raising GPU prices just to stand still. In every shortage, money flows to suppliers that quote weekly and away from those locked into annual contracts; memory makers are price setters, while AMD sits in the tier where margins go to die. x.comÂ
A memory-chip shortage lasting until 2030 is good for Nvidia. SK hynix expects that shortage and reports a 632% profit jump. x.comÂ
Rising memory contract prices strengthen the case for memory stocks still far below their highs. JPMorgan forecasts Q4 DRAM prices up 13% and NAND up 18%; Micron is 28% below its 52-week high, Seagate 44%, Sandisk 47% and Western Digital 55%. x.comÂ
Nvidia retains pricing power if its full system keeps reducing customers' cost per effective AI task. Strong AI demand alone does not ensure profits across the chain: rising chip, memory and optical costs burden buyers, while tighter financing and slow collections threaten operators. Large customers developing their own chips could pressure Nvidia's margins even as the market grows. x.comÂ
Inflation, rising rates, Chinese competition and rising AI-related financial costs are pressuring the memory market. Micron, Samsung and SK hynix look exposed; waiting for the cycle to turn. x.com x.comÂ
Memory scarcity is now the bottleneck of the whole AI buildout, which is bullish for memory sellers such as Micron, SK hynix and Samsung. Nvidia reported revenue of $96.2B, up 106%, guided Q3 to $108B and gave a first look at roughly 70% growth next fiscal year, about $100B above Street models, while calling itself supply constrained. The tell is its margin: 74% next quarter, troughing at 71-72% by Q4 as memory costs bite. x.comÂ
Memory stocks face huge downside because memory is a commodity, and today's undersupply will turn to oversupply as capex rises. Demand is inelastic, so suppliers have pricing power only while undersupplied; Samsung, SK hynix and Micron are all raising capex, and China's big DRAM expansion will ease shortages across the chain. Stocks peak before financials weaken, DRAM prices are already falling, and customers are optimizing memory use, so low P/Es offer no protection. x.comÂ
Financing risk makes AI-linked growth stocks unattractive to add here. Much of the money reaching suppliers such as Nvidia and Micron is financed, so harder funding would limit spending on chips, compute and memory. The buildout is not over, but stock prices could remain suppressed until it slows. A significant drawdown would make adding appealing; for many high-beta names with weak fundamentals and balance sheets, the highs look to be in. x.comÂ
Agentic AI's repeated context favors cache memory and storage demand for Micron, SK hynix and Sandisk over fresh GPU computation. Per @demian_ai, about 95% of input tokens for DeepSeek V4.1 Flash on OpenRouter were cache hits; storage matters unless routing and caching keep almost everything in GPU memory. New products such as 3D DRAM and HBM-on-logic could be the final trigger for a full memory-stock re-rating. x.com x.comÂ
SK hynix and other Korean memory makers' aggressive price hikes invite customers to optimize memory use, undermining the case for 90% margins despite a long-term shortage. Memory is the only layer raising cost per token. Elon Musk described Micron's future pricing as reasonable and other suppliers' as extortionate, warning that today's customers would not forget; exorbitant long-term contracts compound that risk. x.com x.comÂ
