Wall Street Is Mispricing Micron!

Hey guys, welcome back. Well, honestly, we had another tough day in the tech sector, another tough day in the memory sector today overall. We're seeing significant pressure on so many stocks related to the AI infrastructure buildout. Micron today was down by almost another 6%. It closed about 8:53. We saw Sandisk crash to a buy a brutal 13% today. Last time I looked at it, it was trading in the 1450 range. We'll take a look at those stocks in a moment. But the semiconductor index today, the SOX, it was down by over 4% overall. To an untrained eye, this looks like it's an absolute collapse of the sector, an absolute collapse of the AI infrastructure buildout. And if you look at the mainstream media headlines, it tells you the same thing. It gives you the sense that the AI memory boom is over. Let me show you a couple of those headlines that I just saw when I was looking at Barron's as well as Wall Street Journal. Just take a look at the Barron's here. Great rotation is here. Why memory is fleeing chips for old favorites. We saw some rotation into the mag seven today. I was anticipating to see some rotation back into the mag seven, that those stocks were just undervalued. Feeling some anxiety that we're seeing right now in the in the AI infrastructure space. I just felt we would see some rotation. That's what Barron's is calling out here in the article. If you look at Wall Street Journal, it says, here's what's happening behind the market swings in charts. Take a look at the SOX index here. Like I mentioned, it was down the percentage change in July, over 15%. Compare that to other sectors like energy financials healthcare all moving in the opposite direction. So tech is under attack right now, essentially is what this data is telling us. If we scroll down here, you can see the drop off in chips. Here they're specifically calling out Sandisk, Western Digital, and Marvell compared to the semiconductor index overall. From June 22nd to where we are today. It may surprise you that Micron is down by 30% since its peaks on June 22nd. And if I scroll down, I think there was a couple other charts that I just wanted to highlight to give you a sense of what's happening in the market. We see all rising oil prices. We also see teetering treasury yields. We know the impact that both of those have on the tech sector overall. But we can see here is the strong earnings. There was one more I wanted to get to. I think it's right here. Just the broadening rally. If you look again from the peaks that we saw in June 22nd to where we are today, you could see both health care as well as the transportation sectors compared to the semiconductor industry. So we are seeing AI under attack essentially since the peak of June 22nd. It's having an impact across so many stocks. Just take a look at the action today. Look on all the AI hardware names that we talk about on this channel. Everything from Nvidia all the way down to the memory titans, the picks and the shovels, Lam, Applied Materials. We're seeing across the board today. Where we did see movement and we've seen Apple over the last few days have really strong performance. Microsoft picked up some, but we're seeing it in discount stores and beverages. It is not AI right now. That's just a one-day performance, but let's drop down and take a look at the one-month one-month performance. Look at here. Micron down by 21% over the last 30 days. We're seeing Sandisk down by 30 33%. Western Digital down by almost 29%. Seagate down by 27%. So the reality here guys that I'm calling out is that we are seeing significant pressure on this sector for the last 30 days since the peaks of June 22nd overall. And today we feel it with the memory sector cuz it's what we track so closely on this channel. But honestly, it was across all of tech. So we're not going to look at the daily the daily noise. I just showed you a lot of it, but instead I want to go back and I want to look at some of the data that we're seeing in the market right now. Because Micron dropped, as I mentioned, 30% since its June 22nd peak, but the fundamental that the fundamental value of this company actually grew stronger today. That may surprise you that I say that, but we're going to review some articles that you show you the fundamentals and the strength in the sector even got stronger based on the earnings we saw yesterday and some reports that came out today. I'm going to show you exactly why the analysts at the try the trivariate research just labeled Micron the most important stock in the entire market and why Wall Street is completely mispricing this pullback. So, that's what I'm going to show you in today's video. It's going to be a quick video cuz I've got to run for a meeting, but I want to drop my thoughts to you cuz I know I've been getting these videos out really late. It's been hard for some of you to watch them. So, I'm trying to get this one out a bit earlier today. So, guys, if you haven't done it, hit like, subscribe to the channel. Let's get started. Let's talk about the first story. First, let's address the demand side. The question is is Big Tech slowing down on AI? Today, Taiwan Semiconductor, the company that manufactures chips for Nvidia, Apple, AMD, and Broadcom, they've released their Q2 earnings. Let's pull them up and take a look at actually what they said. You can see on your screen here TSMC's second quarter earnings. The headline being AI demand keeps the momentum going. Take a look at the revenue that you see across the street. TSMC, they had 40 billion in revenue. The year-to-date year-over-year growth was just about 34%. Quarter-over-quarter growth 12%. Gross margins roughly 68% operating margins in the 60.3% range. So, if we take a look at the functions of their business in general, look at how the structural shift that we're seeing. Cuz in 2021, you can see on the graph. Actually, I have another one. Let me pull it up and I think it tells it better. This graphic shows it even easier. Take a look at this structural shift that you see from TSMC. You can see on the right side of the graphic was 2021. What percentage of the revenue was represented in these different segments of business for them. You can see smartphones made up about 42% of the revenue for TSMC. High performance computing, which is where which is the silicon powering AI and data centers, was only roughly 39%. Fast forward to today, if you look on the right side of the screen, you can see that TSMC has undergone a structural shift. Uh high performance computing has now skyrocketed 500% making up 2/3 of TSMC's entire business. Smartphones, they have shrunk to just 22%. This is the single most important chart in semiconductors today. Four years ago, smartphones were driving the industry. Today, AI compute has become the industry. And so what does this mean for Micron? Every single one of those AI processors made by TSMC requires ultra-fast, high-bandwidth memory to function. The physical hardware demand isn't just growing. It is completely taken over the semiconductor supply chain. So, the question now would be if demand is breaking records, why did memory stocks sell off so aggressively since we've seen this. We had started with the Reuters report that we talked about guys yesterday in the video when we talked about Coreweave. That report overall and it was showing how Coreweave is looking to use financial derivatives to protect itself against future decline in memory and storage prices. Retail investors, they read that headline and they panicked. We know the anxiety that is in this cycle anyways and this just alerted uh retail investors and it caused a bit of panic, in my opinion. Let's put our institutional hats on for a second. Why does a company hedge in the first place? You only buy insurance on something when you have a massive multi-billion-dollar exposure to it. Coreweave is locking in derivatives because they are buying memory at the unprecedented scale. They are trying to secure pricing predictability. In fact, when we look at Evercore's analyst Amit uh Amit Daryanani today, he pointed out that supply constraints for both DRAM and NAND are actually projected to worsen by the end of this year. Let me show you that article right here on MarketWatch. You can see it down at the blow below. It says, "Evercore analyst said investors are likely taking the report as a sign that memory prices are are approaching a peak." And the report was the one from Reuters around Coreweave. "However, constraints for both DRAM and NAND, in his opinion, will likely worsen by the end of this year, and they'll continue through most of next year," he said in his note on Wednesday, citing supply chain checks and commentary from original equipment manufacturers. This lines up directly with what we have talked about, what we've heard from SK Hynix's chairman and their CEO around the constraints that they expect to see next year and out through 2030 overall. So, I think when we take a look at what Coreweave is doing, guys, it is just to protect themselves because, as I mentioned earlier, they are buying memory at a unprecedented scale. And then there's a highly technical reason or individual force right now pulling Micron down. I want to go through an article with you that walks through three factors why they believe Micron is being pulled down since its peak in July in June the 22nd. So, let me pull up that article. It's in Barron's. You can see here on the screen, "Three reasons why Micron stocks keeps falling." Now, we've addressed two of these reasons already on prior videos. So, I won't go through them. The first one is ASML on how their their new machines can potentially produce memory chips more efficiently. That definitely caused some anxiety. The second one was around the core weave story that I've mentioned, but the third one that I want to call out, it's all around Micron and other memory chip companies is saying they have been driven up partially by the use of exchange-traded funds or ETFs, you know, offering leverage exposure. The leverage ETFs they own the option swaps and other derivatives to enhance the daily moves up or down for the stock. The issue that led The issue is that leverage ETFs amplify the downward moves. Larger losses need even larger gains to get back even, which is worsened by the fact that leverage ETFs must adjust their holdings at the end of each trading day to maintain their leverage ratio. Such rebalancing introduces a compounding effect that erodes returns. Now, here's a piece that I want you to listen to because I haven't heard this anywhere else since this morning in Barron's. After peaking in June, assets under manage and management of leverage memory stock ETFs have shrunk by 34% while all leverage equity ETFs have shrunk by 13%. So, we're seeing almost a threefold increase in memory leveraged ETFs, and that was based on a JP Morgan analyst. You can see in the research note that he put out yesterday. So, that's having a significant impact on the sector as well. It is definitely pulling down the memory stocks, and I think that's a piece of the story. So, we're seeing not only the ASML piece, we're seeing the core weave anxieties, we're seeing just this ETF stories, and I think we're just getting this sense of anxiety from investors overall that have we reached the peak? Have we reached kind of the top in this sector overall? But, that's where I want to take us to just discuss one of the stories that came out today from tri from Excuse me, from Triariate Research that mentioned that Micron is the most important stock in the market. Let's jump over to that article that was in MarketWatch. You can see it on your screen here. It says, "Micron has turned into the most important stock in the market. So, is it time to worry?" The sub-headline says, "While investors are concerned about a memory peak, analysts say the stock still looks cheap relative to various earning scenarios." So, let's walk through this together. This is from Britney Win. But, here right here, "Analysts from Triariate Research went so far to call the memory chip maker the most important stock in the market. They did that today. They called it out They called out its role as a proxy for the AI cycle and risk-taking. But, while Micron investors were once riding high, we certainly were, we're not feeling that way right now, but we have to have our conviction. That's the way I feel in my gut. While we are riding high, lately the path has been rocky. Micron shares are down 30% since June 22nd peak." As I scroll down here, "Micron shares are trading below 850 right now, meaning the multiple is even lower. The stock closed below its 50-day moving average on Wednesday, marking the first time this has happened since April 7th, according to the Dow Jones market data. The Triariate analysts, they modeled 10,000 possibilities for Micron's earnings per share through the eventual top then downturn of the AI cycle to gauge a reasonable potential assumptions for the company's future earning urging future earnings power." "In a scenario where memory cycle returns to trading as a commodity and a downturn is twice as slow as it's been historical, the analysts modeled peak EPS to be 194 and 156 in the bear case. They concluded that the consensus view of 178 appears to be to appears to underestimate the peak EPS relative to our forecasted distribution of outcomes. So, this was a very interesting article overall. The fact that Triumph Triumph TriVarity Research is calling it the most important stock in the market right now. I don't know if we feel that way, but guys, there's so many analysts that still have such strong conviction for this stock overall. And if we jump to Micron, we know what it did today, down $51, just over 5% in the after hours we're continuing to face more pressure. The stock is about $8.30 a share right now, down about 3%, but if we scroll down and look at this company company scorecard, we know what the fair price value is for this stock. It's at nine $9.08 a share. Analyst sentiment still continues to be strong. Almost $1,500 a share, representing a 75% threshold upside upside potential from where the stock trades today. They have not changed their sentiment whatsoever on this stock. I'll pull it down to show you. What we're seeing right now in the analyst ratings, it continues to be a overall consensus of strong buy. We see 40 analysts have buy, five have hold, zero have sells. We know what the price targets have been for Micron. This This stock is just undervalued right now. As I mentioned, they ran 10,000 simulations on Micron's earning potentials. Even in a conservative scenario where memory returns to commodity-like cycle, they projected peak EPS's of 194 and 156 in a severe bear market. Wall Street's current consensus estimate is sitting at 178 per share for Micron. In other words, the market is severely underestimating Micron's true earnings power because they're terrified of a cyclical peak that isn't showing up in the data. Bank of America still projects cloud and AI CapEx to reach 1.5 trillion by 2027. And this is the piece that I I want to last piece I want to leave you because if if you need one more piece of evidence, it's what we saw today with Micron, the announcement of more long-term auto chip deals. We see across the board. This is the biggest piece for me, the kind of a huge piece of evidence that Micron is maturing past its old boom and bust cycle. When you look at what they announced today, we know they completed, they continue to lock up customers in these strategic customer agreements. Today they announced major automotive tier one giants including uh not just automotive, but other giants as well including Qualcomm, Harman, Denso, Hyundai. These aren't temporary purchase orders. These are long-term multi-year contracts with locked-in supply and pricing to power the next generation of AI-enabled software-defined vehicles. This is the teachable moment of the day in my opinion for us as as community members here in Market Signal. We have to remember that traders trade price, but investors, we invest in businesses. Today the daily chart for Micron is a strong sell because the short-term momentum broke on the stock. But the weekly chart and the chart that I just showed you from the analyst, that long-term trend remains a strong buy for this stock. The average Wall Wall Street price target is sitting just about $1,500 a share. So if you liked Micron at $1,200 a share, you have to love this business now at $8.50 a share. Wall Street has moved from asking whether AI demand exists to asking how long extraordinary memory prices can last. And those are two completely different questions. And until the data tells me otherwise, I still believe in the fundamentals of this sector and I still believe in the winning in this sector overall. So I hope you enjoyed the video. I'll see you in the next one.