Why Chip Stocks are About to Explode

Which camp are you in? The camp that says even if China's AI models are different and then they have Chinese memory chips that are cheaper and their stack is is going to disintermediate ours that more compute is still better for memory chips in the long run. >> Yeah, I think memory is at the center of every methodology for AI training and inference. So I'm very bullish. I I would say this is an unusual cycle in that you're going to get these second derivative sell-offs like we saw in April like we've seen in the last month uh because the the tea leaves that you're reading are a little bit different than you might see. But the true true north here is the strength of data center and the belief in data center uh customers that memory is going to be a binding constraint on the ability to ramp AI for really multiple years. So those second derivative concerns, the things that have been dragging down the stock, I think to me have created an interesting entry point here. >> Although I just wonder about the old saying that the cure for higher prices is higher prices and so much of the gain and the earnings gain in these names has been from higher prices that it's some point is there going to be another side? I know they have locked in contracts for multiple years and so on and so forth, but are the companies who have to pay these numbers just going to find another way? Is CXMT the answer? >> Yeah, it's it's a remarkable situation, right? You're going to see as much inflation in memory this year as we've seen in the price of oil and it doesn't get anywhere near the focus on a broader macro sense. You know, we're going to see something like $800 billion of memory inflation. So, it's significant and that cost has to be borne by the electronics industry, by the capital spenders. Um, but there really is no substitute from from uh high bandwidth memory and some of these central uh memories that are needed for AI. And so I think we we'll find ways to do more with less. I would say that uh we we were we had a road show with Jensen Wong last week and he was sort of talking about that that that memory is going to stay in short supply for many years and token growth is 10x, memory growth is much less than that. So we have to find ways of getting smarter about getting more tokens per gigabyte of DRM and NAND. Uh and we will do that. But I think uh you know to me this is a cycle that is noteworthy. The amplitude that we've seen so far of the cycle is noteworthy. But I think going forward it's the duration that I'm really focused on is that this could be you know really a three fouryear situation if AI remains robust where memory remains this tight. >> Joe, I'm I'm personally a little bit pissed about this. I gotta tell you because I'm the guy in the rock and roll my little rock and roll band, the Stella Blues Band, that >> you're more than little. >> I I I do the I do the recording, right? And I'll tell you what I'm used to. I'm used to going out and buying a new flash drive and say, "Wait a second. 128 gigs is only 30 bucks. It used to be 80 bucks for for for 50 for for what was the one below 128?" 504 64. Thank you. But now I go out and I was go looking at a terabyte drive and a two terbte drive and a and they're like a hundred bucks or 50 bucks more than they were before. I mean, of course, they weren't all available back then. You didn't think about three and and five terabyte drives, but these are real real money that coming down to the consumer. I don't think there's many people who consume as much data like this. >> All of a sudden, you're seeing it. you know, you you you you do a set of music on video and it's a gigabyte >> and all of a sudden that that stuff adds up. So, you're telling me, and by the way, from an economics point of view, >> memory and this tech stuff was stuff that always dragged down the index. It's not dragging down the index anymore. But Joe, just I want to recap what you're saying. This is a multi-year event is what you're saying. >> Yeah. you're paying a tax uh when you buy that flash drive on the AI strength that we're seeing and the shortages that it creates and it's certainly creating a lot of angst in the PC smartphone businesses and the other users of these technologies. Um but when you run a 75% cumulative annual growth rate for AI spending out for multiple years, it [laughter] gets bigger each year and we're still growing at a pretty fast rate. So that shortage is intensifying and I think when it when it ends, it won't be because there's more supply. will be because of these other markets. It'll be because there's a deceleration in AI spending.