Dan Niles
Founder & Portfolio Manager of Niles Investment Management
China's domestic market lets YMTC and CXMT threaten Micron, Samsung Electronics and SK hynix without entering US products. China receives 15-25% of smartphones and PCs and is on a path to at least 20-30% memory share over the next several years; current leaders are much too optimistic. History suggests at least a near-term semiconductor rally even if the AI trade has topped. It likely has not: agentic AI should give the trade room to run into 2027. x.com x.com x.com
The near-term pain trade in semiconductors is higher, as funds forced to de-gross near the July bottom chase performance. Chips rallied 9.2% last week despite lackluster AMD and memory results, and no technical indicators are overbought yet. Nvidia is both value and growth at 25x 2026 earnings with over 80% revenue growth, while hyperscaler capex growth accelerates toward nearly 100%. Memory remains less attractive near term. Hikes look less likely under Fed Chair Warsh; Iran is the wildcard. x.com
Semiconductors could stay undersupplied for a long time as more capable AI per dollar creates more uses and drives compute demand. Micron and NVIDIA trade at low forward P/Es because investors fear peak cyclical earnings, yet current earnings show no slowdown. Shortages may worsen as AI adoption spreads, though the industry could remain cyclical; a reversal of the forced rollover trade is hoped for, not assured. x.com x.com x.com
The memory sector is finished because China's CXMT has advanced a 4F² DRAM architecture that could greatly increase density. Micron, SanDisk and other memory-stock holders will bleed for months; China will lead AI moving forward, and those stocks are already paying the price. x.com
Micron and SK hynix pricing in a memory shortage past 2030 extends the memory-cycle case beyond the Street's 2028 expectation. SK hynix's record quarter adds evidence: per Wall St Engine, revenue rose 328% to $78.9B, operating profit rose 632% to $62.8B, and operating margin hit 80%. Agentic and physical AI could add demand as they roll out. x.com x.com
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.com
Physical AI's reliance on semiconductors across its technology layers could make it the next theme to drive another rally in semiconductor stocks. Micron recently echoed this view. There is still much to learn about the field. x.com
A worsening memory shortage in 2027 could favor Micron, SanDisk and SK hynix as AI stocks. Samsung warns that the shortage will worsen then. x.com
Chinese memory makers YMTC and CXMT are using the AI-driven shortage to build a bigger competitive threat to Micron, Samsung and SK hynix. Per DigiTimes, both are scaling capacity with state backing to gain share; they are making inroads in PCs, and CXMT reportedly plans to ramp HBM3 later this year. The worst shortages ever seen have lifted prices only temporarily. Legacy DRAM makers face demand and supply pressure, and the market will eventually discount a far more competitive market. x.com
SK hynix's record earnings and five-year volume and spec agreements make its valuation look too low. Quarterly revenue reached KRW104.62T, up 32%, and operating profit hit $63B against a $785B market cap, below AMD's and less than half Tesla's. Its planned KRW100T (~$75B) shareholder return would be one of the world's largest, signaling conviction and unusual demand visibility. AI-inference 3D DRAM is coming by 2030; a reasonable valuation is all that is sought. x.com x.com x.com x.com x.com … Show more
Prepaid contracts and demand-paced fabs weaken a broad 2028 memory-glut case. SK hynix says over half its 2027-28 capacity is signed with deposits; 'sold out through 2029' includes negotiations. Samsung targets 60-70% contracted capacity. Micron's three projects begin output in 2H28; tooling follows demand. Reuters says CXMT's 20-30%-yield HBM3E may ship this year to export-restricted Chinese buyers, but performs like older HBM3. Commodity DRAM risks 2028-29 oversupply; NAND could ease in 2H27. … Show more
Semiconductors could capture scarce spot compute's value if its forward curve holds. Compute trades in deep contango, while chip stocks price in little of that value; near-term moves are unpredictable. That makes the sector very bullish. The earlier lab-funding risk looks less acute: Anthropic should hold nearly $200B cash after its IPO and is operating-cash-flow profitable. Even with 2029 capex cuts, chips look cheap if future buyers do not default. x.com x.com x.com x.com x.com
