Micron Just Quietly Solved Their Biggest Problem

Micron just quietly, somewhat, solved its biggest problem. And it is a problem that has plagued Micron for really forever. And they've solved it. And this is something that Wall Street is really not talking about. They don't see it. They don't get it. And we're going to dig into this. I promise this is worth your time. If you own Micron, this is worth your time. If you own SK Hynix, this is still worth your time because SK Hynix has done something similar. If you are remotely interested in AI stocks, memory stocks, I am building an AI stock community here on my channel. Micron community, SK Hynix community. And I would love to have you do two things. Hit that like button below this video, please. And hit that subscribe button if you want to be part of that. And I promise that I will deliver value to you every single day. All right. So, look, we're kind of in a little bit of a rough patch right now as it relates to Micron and AI stocks. There was a sell-off today. Micron was down about 4.7%. Not about, they were down 4.77%. 46 bucks were down. We're currently trading at 9:32. My opinion, pretty good time to be buying. Again, not investing advice. Got to do what's right for you. In the last month, we're up we're down 14%. And on the last 3 months, we continue to still be up a Oh, I don't know. You know, not bad. 100%. Okay. So, here's what's really interesting, okay? Is that this graphic explains all of it. And I'm going to dig into this. I promise this looks There's a lot going on here. I'm going to walk you through every component and ultimately bring it back to why and how you understand how Micron has solved their biggest problem. And one of Micron's biggest problems is the perception that Micron is very cyclical, that they have a very cyclical business, and that that cycle depends on you know, a very set set cycle of Micron manufacturers products, then they they don't sell, and then they sit in their warehouse, and then price have they have to drive their drop their price to ultimately sell the inventory, which erodes margins, and and so forth and so on. And that essentially is a very simple explanation of the perception of what Micron's business has has been and kind of still is. And it is a misconception. There is a disconnect on Wall Street side. Thus, there's a disconnect on Wall Street conveying that message to their peers that you know, the the you know, their people that own stock and the people who they advise and all that kind of stuff, which brings us back to the opportunity. The opportunity is this, is that Micron with their strategic customer agreements that they had now have announced that they have 16 of them. Right here, number two, you see where my mouse is. They have six They've announced 16 customer agreements in the last Q3 earnings call representing a hundred billion dollars in revenue spread out, uh, I believe until the year 2030, if not a little bit beyond. Number three, 22 billion of that has already been deposited and given to Micron associated with these strategic customer agreements, okay? Paying in advance to secure future supply because shortages will continue, okay? But I want to come back. It are the It is these strategic services agreements that A, help to quietly solve Micron's problem of this cyclical nature of their business. And number two, though, and more importantly around that, what's really solved the cyclical nature of Micron's business is that AI memory from companies like Micron, SK Hynix, and Samsung, it is no longer just AI memory. It is memory that everybody has to have, and it is in short supply. It is in short demand. I am talking about HBM high-bandwidth memory. I am talking about DRAM. I'm talking about NAND memory. All of those, in one facet or of or the other, impact different segments of the AI spectrum with current with current AI models being built, but more so as we move into the next wave of AI, which is the agentic AI initiative that where we are going to see AI agents deployed, and that initiative is going to require even more memory from Micron. It's going to require DRAM, NAND NAND uh memory in in addition to HBM, but it's going to require those, too. So, it fits in all of the buckets, if you will, of what Micron does. And ultimately, it is that shortfall of demand versus supply, right? There simply is not enough supply of of memory to fulfill the need. And by the way, I'm not even talking about memory that is needed for future robotics initiative. We all know that Tesla is going to going to launch the the the humanoid robot you know, robot that's ultimately going to be in our houses and things of this nature, and that's going to require even more memory. The AI memory shortfall is going to last at least until 2030, if not longer. CEO of Micron, CEO of SK Hynix has come out and talked about it. The simple fact is is that we are no longer with Micron in a cyclical business. Their biggest problem that Micron had was being viewed as a commodity company making a commodity product, memory. That is no longer the case. And I still believe at the end of the day Wall Street is getting it wrong. And I still believe at the end of the day that a lot of people are getting it wrong when they think of Micron. They think of it as just memory and it's a cyclical business and it's a it's a commodity and blah blah blah. And that simply is not the case. Memory is becoming the most crucial component, one of the most crucial components of the entire AI stack. Chips, semiconductor chips, memory, networking, power production, energy production, all those are different facets or different levels of that. And without memory, nothing works. AMD's chips do not work without memory. Nvidia's chips do not work, so forth and so on. Micron has quietly solved their biggest problem and nobody's talking about it. Cyclical nature, gone. Memory a commodity gone. Earnings just absolutely going through the roof. Why? Higher margins. Higher prices equal higher margins. Higher gross and net margins equal what? Higher earnings. Higher earnings per share equal what? It relates to the stock price. Austin, it's down today. Yes, I know. I know that you know, today has been a down day on the market. It has. Well, you want to know why? It's because of what we are seeing playing out with the Iran-US conflict. And it continues to be part of the narrative of, you know, is this is three three reasons to buy Micron. This is another video. You're welcome to screenshot that. That's actually not what I'm talking about in this video. >> [laughter] >> Uh but you get my point. Um look, I just clicked on the wrong graphic. The simple fact of the equation is the market's down today. Great. Okay, I mean it is. It's not great. I mean I'm down, you know, but it's not like it's crashing. Okay? So, the market closed down, NASDAQ closed down 408, NASDAQ closed down 138, but it did it is predominantly around Iran and the Strait of Hormuz, United States, all that kind of stuff. Okay, stocks are moving lower. Everybody is spooked about AI stocks. Every single day Wall Street is is putting out messaging having to do with is CapEx expenditures going to slow down, you know, are these companies overvalued and so forth and so on. And to which I've done videos and said I don't really believe that. Okay, kind of continuing back to what we're talking about. These customer agreements and the fact that we're in a shortage protects margins. I mentioned it briefly a minute ago. Those higher those the higher prices drive higher margins, okay? Past cycles, prices could collapse 50 to 70%. That simply is not going to happen. And again, I think that people really truly miss that. I think that people misunderstand the fact that there is a memory shortage, not not really AI memory, okay? I I talk about AI memory all the time, Micron, SK Hynix, Samsung, but we really need to talk about just memory in general because there other people outside of AI that need these chips, too. And by these cust- these strategic cust- customer agreements move people to the front of the line, General Motors, Ford, so forth and so on. Hyperscalers who are committing hundreds of billions of dollars to this. That is money that is committed and will be spent, has been allocated and is being spent. Meta's building a $250 billion an additional data center. I think it's number 33. They are not going to stop spending. They may slow spending at some time, and I am on record as talking about this. If they if we do start to get indicators that spending is going to slow from the hyperscalers and/or enterprise massive clients that are building out, then yes, let's have that discussion when we start to hear that rhetoric. But I'm not hearing anything or seeing anything. It's Wall Street that continues to trot out that old mule, if you will, and go, "Spending may Spending may slow." And it freaks everybody out, and everybody starts selling. I think they do it to, personally, to manipulate and drive prices, but that's just my opinion, okay? Price floors. Higher prices protect margin. Micron's margins. Minimum prices designed to to deliver higher gross margins, well above the peak of any previous cycle. We no longer have a cycle a cyclical business, where you know, they would make the make the chips, they were commodity, nobody needed them, they would sit in the warehouse, Micron's warehouse, Micron would have to dump them at a slashed price, thus driving down margins, so forth and so on. Five-year visibility, right here, number six in the middle. Most of these agreements go through 2030. Automotive contracts generally run about 3 years. General Motors, Ford, all both are the two main announced companies that are associated with these strategic customer agreements. Uh are building Micron chips into their obviously their vehicles. It is Micron chips that are going into Ford and General Motors vehicles. Unprecedented visibility for product production planning and capital allocation. Right here, number six, that blue. These customer agreements, and because we are no longer in a cyclical nature, give Micron the visibility for production planning and capital allocation. It also allows them to recognize revenue how and when they want to. They'll recognize that revenue when they ship those chips to that customer, that customer, that customer. Okay? Number seven, significant portion of businesses of business covered. Analysts estimate these contracts could eventually account for 40% of Micron's total revenue if the program expands, and I guarantee you it's expanding. Why is the strategic customer agreement part of Micron's business going to expand? It's very simple. You're a big company and you need memory chips. Micron comes to you and says, "Sign a strategic customer agreement with us for X amount of dollars." And you move to the top of the the line. You move to the front of the line. You move to the top of the heap. That company By the way, companies, there's more than them. There's a lot of them. They want and need and have to have these memory chips cuz they are a crucial component of their business as well. They're going to have more strategic customer agreements coming, Micron is. And think about what that graphic just said right there. Analysts estimate these contracts could eventually account for 40% of Micron's total revenue if the program expands. It will. Number eight. Shortages are going to continue. Simply put, the memory shortage for Micron, SK Hynix, and Samsung is going to continue throughout '27. Improvement will begin in '28, number eight, right over here on the right, because we will have fabrication facilities coming online for Micron, SK, Samsung, so forth. They're all building the fab the fabrication facilities right now. We do not, quote, from the CEO himself, "We do not have a line of sight to when supply will catch up with demand." SK Hynix CEO said something almost exactly the same. He said we see it running until 2030. That's actually what they asked the SK Hynix CEO said. Said we see this shortage going all the way to 2030. So last So So again, under here number eight, customers are locking in long-term agreements because they believe demand will outpace supply for years. And that simply is it. More of these strategic customer agreements coming. Again, continues to mitigate and put to bed the old old analogies of Micron has a cyclical business. Micron is a commodity. It is simply not the way it was. And Wall Street just doesn't get it. And more importantly, the message that Wall Street analysts are sending to the people that are reading their reports, to the big big firms, the Schwabs, the Merrill Lynches, and the JP Morgans of the world, they're reading all this stuff and they're going, "Oh, it's okay, it's cyclical nature. Yeah, I don't know." It's simply not. When you dig into it, guys, this graphic right here that I that I created tells you as much or more than an analyst report that in my opinion, a lot of them are outdated because they continue to say the same stuff. I've read them. They continue to say the same stuff about cyclical nature, commodity, all these kind of things. And they're not taking into consideration strategic customer agreements and components of this graphic that I have just gone over with you. They simply don't get it. And And the beauty of that is that a lot of people, millions of investors, rely on just those analyst reports. That's all they watch and that's all they read. And they're simply not getting, in my opinion, the real picture. Okay? Now, am I telling you to go out and buy Micron? Nope, not. This is not investing advice, right? You got to do what's right for you. Am I telling you to go buy SK Hynix, which by the way, I'm going to be buying SK Hynix cuz it's on a nice dip today as well. Cuz look, we're not tribal. I'm not tribal about my Micron. I'm not. I own Micron. I I I own I have exposure to SK Hynix in in the DRAM ETF out the the the memory ETF, Thornhill, the Thornhill ticker DRAM. But I am going to buy SK Hynix directly. I'm going to own it. Okay? I said I I said what I was going to do. I didn't buy it when it opened and I said I think it's going to go down and it has. It's gone down because it's getting caught up in in the rhetoric and in all the stuff we're seeing play out in, you know, in the main market, right? The the issues we're seeing with the market, Iran, US trade reform moves, so forth. But I am going to buy it. So, let's see where it ended. Let's see where it ended um today. Yes, I know this is a Micron video. Yeah, but see it ended at 1:52. It's down 9%, you know? I mean, it's kind of crazy, isn't it? In the last 5 days it's down 10%. It's down 10% essentially from where from where it, you know, it opened. Yeah. And that's not I don't think it has nothing to do with Micron. It's it's a move down to push down because of the overall market conditions and you know, and what we're seeing you know, there. We're going to end on this note right here down in the lower left-hand corner. You see this part of the graphic down here in the lower right lower right-hand corner, excuse me, of the screen. Why this changes everything. And we're talking about two things. We're talking about strategic customer agreements and we're talking about the fact that demand for memory chips from Micron is far exceeding the supply. Okay. The old memory cycle. Huge profits, everybody builds fab, oversupply, memory price collapse, inventory sits in warehouses. Losses repeat. And I would add viewed as a commodity. The new model. Let me zoom in on this just a little bit so you guys can see this. The new model. AI demand AI demand is not going anywhere. AI demand is outstripping supply until well past 2028 if not 2030. Long-term contracts that Micron put into place, 16 of them right now, 100 billion dollars revenue to be recognized over a period of time and do um all the way into 2030. Additional strategic contracts are coming because those companies in you know company names these companies over here out and by the way out outside of the hyperscalers. Remember this, these contracts General Motors and Ford are part of these strategic customer agreements. They're not hyperscalers. They're not in they're not AI hyperscalers. They're not Google meta although there is you know we I believe that there are hyperscalers on the list of 16. They just haven't been Micron hasn't disclosed who they were. And that's again I think what part of what Wall Street misses is that they missed the fact everybody focuses on hyperscalers. Everybody focuses on it's only the hyperscalers that are spending money. That simply is not true. It is large companies like General Motors and Ford as evidenced by the two big two two of the biggest the biggest names in in the world that have gotten in with Micron with these strategic customer agreements. So again Micron model AI demand long-term contracts pricing locked-in pricing guaranteed supply locked-in margins to Micron more stable earnings. Remember higher prices cuz Micron is raising their price. SK Hynix is raising their price. Samsung's raising their price. Higher prices equal higher margins. Higher margins equal equal higher earnings. Higher earnings equal higher EPS, earnings per share, which ultimately drives what? Stock price. More stable earnings. More stable future guidance. These customer agreements help us with more stable even future guidance that Micron can give us as far as what future numbers will be. Q4 of this year, Q1 of next year, so forth and so on. This is what I love about this. Micron just quietly solved their biggest problem. Problems actually. What do you think? Drop in the comments below. See you in the next video. Thank you for supporting this. If you haven't already done so, hit that subscribe, hit that like button on your way out. And hit that bell notification cuz I release content every single day. See you.