원문 보기
One of the main themes of the AI business development in 2026 has been the memory shortage, and companies like Micron and SK Hynix stand to benefit from this supply-demand imbalance. So, there's some more good news for investors in Micron stock : management said that 2027 and 2028 are likely to be more challenging than 2026 in terms of customer supply and demand .
Isn't that right? This is good news for Micron, but not so good for customers. So I wanted to share these details with you from the management team, talk about what it means for investors, and update my view on Micron stock after the company released these fantastic quarterly financial results. Do I still think this is a buying opportunity?
Is it time to take profit? What is my estimate of fair value? I will answer all of these questions in this relatively short video. I would like . Here you can see the statement from Micron management. For calendar years 2027 and 2028, they expect NAND memory shipments to grow by approximately 20-29%, with the industry remaining supply-constrained in both years.
This is their data storage business, and they expect shipments to grow by 20%, despite the expected shortage in this industry. So, that's good news. This means that average sales prices are likely to remain high. Similarly, for 2027 and 2028, they expect DRAM growth to be just over 20%, with the industry remaining supply-constrained in both years.
So the shortage of memory and storage systems, which Micron sells primarily for the data center market , will likely persist into 2028. And this is great news, because as investors we already knew that they were all sold out by 2026. We already understood that in 2027, it seems, everything will be sold out too.
And now we hear that in 2028 they will probably sell everything again . And the deficit will likely persist into the 2029 calendar year. That's right. So, this is the planning horizon that Micron sees, based on conversations with customers and demand forecasts for several years into the future. Even with all the additional production capacity being introduced and steady demand trends, including new customer requests, we have no clear understanding of when supply and demand will balance out.
Wow. So they're not just saying that the industry will be resource constrained by the end of 2028, right? But not only that, it will probably take much longer because we don't even see, we can't even comprehend, when the industry balance will be reached. So, this is great news for Micron. And in response to this, they, of course, increase production.
They plan to significantly increase capital spending in 2027 than previously expected. Most of this will go towards accelerating capacity availability for 2028 and beyond. So they are preparing to expand over the next few years. And I get questions, you know, why aren't companies like Micron, SK Hynix, and others increasing production, right?
Why don't they just leave their production at current levels so as not to create an oversupply, and thus be able to continue to set high selling prices and generate record profits. And the answer to that question is ambiguous and it's related to game theory, and you know, I studied this in college and I teach this in college when I teach economics courses, and companies , when they forecast their future, let's say, they look three years ahead and they predict a certain level of demand from the market, and they try to decide : do we add production to sell more products because there is demand, or should we leave production at the current level to sell it at a higher price?
And when they think about this decision, they don't consider it independently, thinking only about themselves and their customers. They also think about their competition and what competitors are likely to do. So if Micron says during their quarterly reports that they're not going to add any more capacity, we're concerned that this could be a boom-bust cycle, and we don't want to add because we don't want to be left with all this excess manufacturing capacity, so we're not going to add anything.
And if that was the signal they were sending to the market, what do you think their competitors would most likely do? Competitors, seeing this steady demand, which is estimated to grow by about 50 % between now and 2030, and seeing that their competitor is not going to add production, may feel more confident in adding significantly more production capacity.
So production capacity will most likely appear on the market anyway. So if Micron doesn't do it, their competitor will, and Micron will lose market share, their competitors will gain it, and ultimately, that will be bad news for Micron. So, this is an exercise in game theory. This is an exercise in assessing what your competitors will do based on what they think your next steps will be.
And if you give signals like Micron, saying we're going to increase production more than we previously expected, Micron hopes that their competitors will see that and say, "Oh, Micron is adding so much, so we shouldn't add as much." We should add a little less. That's what Micron is hoping for by making these estimates and statements.
Of course, you need to analyze the situation more deeply when you are thinking about such decisions, about such an exchange of signals between competitors. It's not just about what Micron has done in the last quarter or two. Their competitors look at the signals that Micron has been giving over the years and how often those signals have been accurate, right?
If Micron constantly says it is going to expand production but doesn't actually do so, competitors will perceive Micron as a company that frequently bluffs. Isn't that right? If you didn't know, I was a professional poker player for almost a decade before getting into investing. And if you are playing against another player who you have repeatedly caught bluffing, you attribute a higher probability that that player will bluff the next time they bet.
So, it's not just something that's happened in the last quarter or two. Competitors evaluate Micron's statements and how accurate they have been over the past decade or more to determine their decisions and reactions to them, right? So there are a lot of strategic choices here that go deeper than simply considering short-term demand cyclicality, and I agree with what Micron is doing.
All things considered, when we think about strategically countering competition and maintaining a balance of market share and supply in the industry versus demand estimates. So, despite all the debate about whether Micron is a cyclical business or not, the valuation leaves no doubt that it is a cyclical business.
Micron's revenues are growing rapidly. Its profits are better than any company I've ever seen, right? Operating margins have been above 80% for two consecutive quarters, the same is expected next quarter, and the stock is trading at a forward P/E ratio of 5.8. About 1/5 of the average price of the S&P 500 index.
The stock market is convinced that Micron is a cyclical business. At least for now, right ? The company's rating may be upgraded in the future, but right now the market clearly sees Micron as a cyclical business, assuming that earnings per share and revenue will typically decline during the cycle. Now is the time for upliftment.
There will be a recession, and earnings per share will fall. The market is convinced of this, if you look at the company's valuation. I also value the companies I follow using a discounted cash flow model, and for Micron I determined a business value of $1,403. The current market price is $1,097. So, the company looks undervalued, no matter how I value it.
So, after evaluating the company's quarterly earnings results, reviewing the conference call, and reading the full transcript, I reaffirm my "buy" rating with a high level of confidence and conviction on Micron stock.
Comments 0