Ticker Symbol YOU: They're Buying Every Chip Before It's Made

I think some people saw a post from Michael Bur uh that came out uh pretty recently and Bur retweeted actually a post from a friend of mine uh Dr. derivatives. And so in his post he essentially cautioned people against buying uh low uh let me see what he said. He said he said now class repeat after me. I will never buy cyclicals at low pees and record earnings. Say it again. I will never buy cyclicals at low PES and record earnings. The one that he's referring to here are MU, Nvidia, Meta, and Microsoft. Those are the ones that were kind of selected out there. So just curious to get your thoughts on that. Yeah, I I honestly I think that's a really smart thing to say and I think the word like the specific word we should all be paying attention to there is cyclicals. So, first of all, I agree with Michael Bur's tweet entirely. What I don't agree with is that Micron is purely a cyclical company anymore, right? Um same with Nvidia, same with Meta, obviously, uh same with pretty much every semiconductor company participating in the AI revolution. So, let's like break those down, I guess, right? So, Michael Bur saying something very smart, but we should remember that his background is really in real estate. Uh, he's the guy who called the 2008 crisis, you know, shorted it well in advance, eventually made a lot of money, incredibly smart guy, incredibly detail-oriented when it comes to these kind of things overall, but he's not a technologist, right? And he's certainly not an AI technologist. And the thing that I think he's missing with that tweet is more and more memory specifically. Let's just talk about micron since that's how you sort of open the question. Um, a lot more memory is moving from cyclical sales, right, commodity sales to contracted upfront like multi-year bill multi-billion dollar contracts, right? And when a commodity starts being priced on a contract basis and on a forward basis, it loses all the risks of cyclicality. So, let's talk about what that means sort of in detail, right? >> Love it. >> Um, in a cyclical market, let's just use RAM as an example. A new iPhone comes out, a new GPU comes out, a new reason to buy your You may see a cat on my lap here. Sorry. Um, >> very good. My pup's been in and out of here. >> Yeah. So, we for for your audience, we have a bad thunderstorm here. I have a couple animals. they're afraid of thunderstorms. So I apologize if they end up like coming to me but um yeah so memory is cyclical right traditionally and so what happens is something creates demand for a new PC a new phone a new whatever right it's time to refresh your device so you do that you buy your new computer or you build it you know you buy your new phone or you build it you buy a new laptop or your work buys a new laptop right there's a big refresh and so what happens is there's all the sudden a lot of demand for memory Right? With all those computers and devices I just talked about, lots lots of new memory sales. Now, everyone's got their new device and they don't need one for a while, right? So, demand for that memory goes down, >> right? That's the that's how cyclicality works. There's a spike in demand. RAM sales sell out or, you know, they go up in price because production doesn't like kind of keep up with it. Then demand crashes. Production stays consistent. When there's consistent supply but lower demand, prices go down, right? And so you get this like oscillating price curve. Go ahead. Sorry. >> And people could kind of think of that as like, you know, the new iPhone came out or the new MacBook Pro came out, right? >> 100%. Spot on. The new Xbox came out, right? And it sells a million units. Each one of those units needs memory, right? So a lot more memory gets sold than like the previous cycle where there was no Xbox, right? >> Um, excuse me one sec. Sorry, buddy. Um so cyclical memory right the key there is memory today is not >> that one >> yeah did you yeah um so memory today isn't working like that how is it working so a hyperscaler Meta Google Amazon Microsoft they're going to Micron they're going to Samsung they're going to skinex and they're saying we want all of your memory production as much as we can take for the best price Right. So, Micron all of a sudden goes from having to project supply or sorry, excuse me, project demand and try to make enough supply to meet it and not go over or else they're stuck, you know, sort of holding their excess inventory which comes with its own costs. They've overproduced. They can't sell it all. Now, they have to get rid of it at a discount. That's like the other side of the cycle, right? When you see memory go on sale for 20, 30, 40% off, right? Which by the way, if you've ever built a PC or you pay attention to that market, you haven't seen in a while now, right? So there's your first hint that memory is no longer cyclical. RAM prices are outrageous. Right? Why is that? Let's talk about the contracts that I just mentioned. Right? So Meta, Microsoft, Amazon, and Google, the big four hyperscalers, they're signing contracts that say, "We will buy all of your memory capacity, specifically your high bandwidth memory capacity, because we want to put it in our data centers, and we can't get enough." >> Right? That's not cyclical anymore. Every single stick of memory, every single chip of memory that these companies produce will get sold at a premium because if Meta doesn't buy it, Amazon will. If Amazon doesn't buy it, Microsoft will. If Microsoft doesn't buy it, Google will. Right? There's a lot more demand than there is supply. So, these companies not only get to elevate their prices, but they guarantee that every unit they produce will be sold. All of the cyclicality risk goes away. M >> that's what Michael Bur is missing with his tweet, right? It's he's not wrong about cyclicals. He's just calling the wrong companies cyclical. >> Why do you think he thinks that this is still cyclical? >> I I you know for a long time that these companies were cyclical. I again I think Michael Bur is a very intelligent guy. I really like when he speaks I listen. I just don't always agree because I'm seeing things from a technology angle and he's probably seeing them from like a macroeconomic you know hey I know this company makes memory. I know memory is cyclical. What the heck is going on here? The price is going up and the sales don't justify this price. >> What else does that do? What else does that do for you when you remove cyclicality from that industry and now they don't have to worry about, hey, we just need to produce as literally as much as possible and it's all going to get bought and it's going to get bought at a premium. What What does that do for the company? >> Yeah, so I mean it does a few things, right? So obviously when their valuation goes up like this, it actually derisks the company because now when they're selling shares, they're selling fewer shares. They can do they have a lot more leverage with banks. They have a lot more ways to raise money at a reasonable price for them, which starts d-risking like their finances and their books, right? You know, one of the best things that can happen to a company is its market cap goes up. It starts paying people out in shares. It starts doing all this stuff, but it's doing less, sorry, it's using less shares to do that because each share is just worth more money, right? That's one. The big thing it does from a technical perspective is it lowers their technical risk. When we there's all different kinds of risk, I think when people think when investors think about risk, you know, on the surface, they're really talking about volatility, right? They're talk they're talking about the risk of the stock going down. And if you're not ready to retire, you know, my thinking is when the stock goes down, it's a good time to buy, right? It's like, you know, when my favorite stores have a sale and things I like go on discounts, I don't think that's a bad thing. That's like when I go to the store, you know what I mean? >> So, do ahead. Sorry to keep coming in, but you always spark great thoughts. Um, on that point right there, right, and we've been trying to drill into people for so long. Hey, the stock market when it goes down, it's like the store going on sale. But I think some people see it differently because they're saying, "Well, why does the store, you know, put things on sale, they put things on sale because people don't want them. Uh, and so, you know, they're trying to get rid of them. They're trying to get them out the door or something like that." Or they're just trying to create some type of phenomenon, you know, Amazon Prime Day or something like that. I think when it comes to the stock market, what people think is, you know, they think of a concept that they don't think of when it comes to retail. They think of like smart money and dumb money, right? And they go, "Oh, it's going down. Somebody smarter than me is saying it's not worth that. it's it's being sold off, right? Like how can people break out of that mindset? >> Yeah, let's let's tackle it in two ways. I think that's a really great observation actually. So, like let's let's talk about that a little bit and see if we can make our way back to memory, right? Um, one thing that stores do that the stock market doesn't is stores have new inventory. What does that mean? Like, let's just talk about a clothing store because I think that's kind of what everybody thinks of first or like a computer store, whatever. things go on sale because the new thing is coming out, right? Like, hey, the iPhone 15's on sale because the iPhone 16 is about to come out. Winter clothes are on sale because spring is about to be here, right? You know what I mean? It's like you're one season behind. The next new thing, the whatever, right? Hey, the the latest Nvidia GPU is on sale because the next one's about to drop, right? Down and down the list. Uh the stock market doesn't have that, right? It's like the the next Micron share that gets produced or you know whatever is is a share of Micron. There's no there's no difference functionally between an old share of Micron and a new share that they just like distributed, right? Except the new one dilutes the old ones, I guess. You know, so that phenomenon that people are worried about in stores doesn't really happen in the market the same way because there's no new thing and old thing. The second thing I want to point out is there's actually no such thing as smart money and dumb money. I I do think this used to exist. So like back before the internet or when the internet was really young and information wasn't like easily and freely distributed, you can make the argument that there was smart money, the people who were doing the research and sharing that research locally, right? Like at big hedge funds and big banks, you know, private family offices, blah blah blah. And then there was the dumb money, which is kind of like the retail investor who didn't have access to that information right? >> Yeah. >> I I get that that concept used to exist. Today, that doesn't really exist. A lot of people do great due diligence on Substack, on Twitter, on YouTube, right? Like there's there's Yeah, I'd like to consider myself among them, but I'm I'm not really talking about myself. I'm talking about like our whole ecosystem, right? Like >> bro's getting half million views on YouTube videos but doesn't think that he's >> a I mean it's it's yeah I'm I'm flattered but in reality right it's the whole community right it's guys like you it's guy like including guys like me but across lots of different surfaces email newsletters right it's like you don't even have to go seek it out you press one button and that information comes to you right is kind of like the overall point I'm making so I think instead of thinking about smart money and dumb money we should be thinking about fast money and Slow money.