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Jim Kramer. This market surprises me almost every day. This weekend, in my regular analysis note that I send to CNBC Investing Club members, I marveled at how the same memory stocks keep going up and up. Many people have stayed away because they think they have already missed these movements. So I have to ask: what if not?
So, today the Dow fell 273 points. This is a significant drop of 0.52%. The Nasdaq fell 0.32%. It's actually been a pretty unpleasant session, mostly due to rising oil prices and interest rates. I want to explain how these great movements can happen and why they may not actually be over yet. The focus is on companies that manufacture memory and storage products used in data centers.
SanDisk has grown by 653% since the beginning of the year. Seagate jumped 261%. Micron grew by 254 %, and Western Digital by 211%. These moves look incredible and downright crazy. These names in the memory sector have become risky. For decades, these were risky stocks with sharp ups and downs. There were periods of impressive growth , followed by terrible crashes that wiped out all your profits and more.
I've always considered the management teams in this business to be financially suicidal because they over- extended themselves in the good times, sowing the seeds of their own destruction when things went badly. I've always been reluctant to recommend them to you because of these crazy ups and downs cycles.
And then data centers came along , and the world said we changed for this. The demand for memory chips has become seemingly endless. These companies have all learned their collective lesson. This time they are not overdoing it with the construction. They want the deficit to continue. Memory is so scarce that Elon Musk started talking about how it has become a major bottleneck for data center development.
Meanwhile, memory manufacturers have adopted new business models with long-term agreements that lock in huge gross margins for many years to come with customers. They actually only build to order. They raised prices to the point that Apple complained that they were increasing the cost of your new phone.
Can we trust these companies and their stocks? Now some of them are buying up huge amounts of shares on the open market. SanDisk has a $15.5 billion buyback program. Seagate said Western Digital has committed $4 billion to buybacks this year. They take that money and give it to you, the shareholders, instead of investing in new capacity.
Only Micron does not have a buyback. Capricious. Previously, these were stocks with smaller capitalization, but in the 2 years since the active construction of data centers began, everything has changed. I want you to hear about these impressive gains. When SanDisk spun off from Western Digital 18 months ago, it was a $7 billion company.
It is now a company worth $262 billion . She watches as Western Digital grows from $21 billion to $225 billion over the same period. A real holiday. Western Digital was worth $17 billion, and now it is worth $ 185 billion. Micron alone was a significant company with $106 billion, and now it is a trillionaire.
It was easy. And you still ask why I think it's worth holding individual stocks along with index funds. You might think that these memory maker stocks have already gone too high. This is a common sentiment I hear, but their huge profits are largely locked in for years to come thanks to these deals. Seagate's gross profit margin was 52% in the last quarter, a record.
Last year it was 37%. Western Digital's gross profit margin was 54% compared to 41% a year ago. These are incredible things, friends. SanDisk's gross profit increased from 26 % to 85% in one year. Micron reached 85% compared to 39%. These are monumental numbers, staggering, unheard of. I remember a time when if Intel could achieve a gross margin of 64%, it would be amazing.
Now listen to what they are doing now. It is difficult for people to realize this endless demand for memory; they don't believe that customer deals will hold up. The biggest fear: they think Samsung will break the agreement and start building factories to flood the market with supply. Of course, it could happen, but not soon; Building factories takes too long.
And look, that's why Micron is selling for just seven of its expected fiscal 2027 earnings. Sandisk is trading at a multiple of eight. If you look at fiscal year 2028, Western Digital has a multiple of 16, and Seagate has a multiple of 17. Overall, these stocks are undervalued because no oneโ well, maybe someโbelieves that people are making fortunes.
Last week, we bought a stake in Micron for a charitable foundation because I truly believe that this industry has changed for the better. At the same time, I admit that I am uncomfortable buying stocks that have risen so much . Luckily, we bought them at a deep discount, as they were trading at the then-current prices of Korean Samsung and SK Hynix, not Seagate, Western Digital, or Sandisk.
The timing was perfect. Club members should be satisfied. Although at the time I thought I was risking everything, and, of course, I was worried that the stock might continue to fall. You see, I don't know a single person who would be comfortable buying stocks at such a high price. I consider Micron more of a growth stock than others.
So I can convince myself that maybe it wasn't just the production restrictions that caused the price to rise. But we all understand that this memory deficit must end someday. Isn't it? I don't deny that. However, I question the timing of any downturn. I think Micron could double again before this boom ends.
If there is no slowdown in the operation of data centers. I know it's a risky statement, but these long-term deals are simply incredible for Micron's profitability. Hey, and by the way, listen to this. Later this week, we'll visit Micron to interview CEO Sandro Marotta at their Idaho research and development facility.
Fabulous, simply fabulous. Not really, but I like it. I think it will be revealing. Don't miss it. I can't wait. This must be incredible. Of course, we know I need steel-toed boots . I think I have them . Of course, I know that there is a lot of opposition to the construction of new facilities right now.
This may limit memory availability somewhat. However, I think there are many cities that want to see them. Such stories are too positive. They don't fit into the negative narrative. Nvidia just made a move that could be much more serious of open-source AI model developers . And this is n't just another purchase of an AI company by Nvidia.
This could be Nvidia's strategy to secure a place at every important level of AI infrastructure. competitive environment is changing. OpenAI, Anthropic , Google, and other major AI developers are increasingly looking at entirely on companies building the biggest AI models, Nvidia is integrating more deeply into the ecosystem where developers actually find, build, and deploy tho corporate customers.
Think of it as a huge meeting place for the open source AI community. And now Nvidia wants to own a much larger share of this platform. may lose some of its demand for hardware. in the Nvidia ecosystem, the more opportunities there are to sell compute, networking, and infrastructure solutionsโthat's the flywheel.
More developersโโhigher demand for compute, which ultimately means more for Nvidia's infrastructure. There's another reason this deal is important: open-source AI could dramatically increase the maller companies don't necessarily need billions of dollars to train their own advanced models from scratch.
They will start with around them, which will accelerate business adoption, and Nvidia wants to lead this growth. But there is a certain competitive complexity. Amazon, Google, and Microsoft are developing their own chips, and cloud giants are seeking greater control over their infrastructure. its hardware, even as it creates alternatives.
is trying to make herself indispensable. And there is another important point. The implementation of AI is still in its infancy. The industry is massively witnessing cheaper models, explosive user growth, huge infrastructure spending, and rapid hardware improvements. This means it's hard years to come, but Nvidia is clearly preparing for different scenarios.
If closed models dominate, Nvidia supplies the infrastructure. If open models explode, Nvidia now has a deeper presence there. If businesses start to aggressively implement AI, Nvidia has has already taken a position here.
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