AI Earnings Growth Cyclical or Secular? Nigam Arora Talks MU, Chips & Corrections

63,000 and change right now. Let's bring Mollie back into the conversation. Turn our attention to a potentially market defining question with our friend Nigam Arora, founder of the Aurora report. Hi. Nice to check in with you. So just talk us through the key question that could define the stock market moving into 2028. You believe that it is whether this earnings growth is cyclical or secular. I turned to the memory trade to, I guess, start to wrap our heads around that question, because that's got a massive question mark over it right now. Given these long term contractual agreements, given the pricing power that these companies have, given the supply constraints that we're seeing, just walk us through your thinking here. Sure, Marley, you set me up just right. Perfect memory trade. Let's talk about something like micron. Micron trades at six times forward p e. And I know something about micron. We bought at about $21. And we're still holding it for, you know 3,900% gain or something like that. So micron continues to show this trend that we're seeing now for next 7 to 10 years. Somewhere here, micron stock is going to hit $3,000. On the other hand, if micron earnings starts sputtering around 2728, micron is going to go down to 3 to $400. So that tells you the range of outcomes that can happen right. So cyclical meaning the earnings are not going to last very long. It's a cycle. It's going to be over secular means they're just going to go on for a long time. So the real question is are these earnings the tremendous earnings growth we're seeing. Is it secular or is this secular cyclical. So if that's the case then and we accept that either argument could be correct because we don't have a crystal ball as far as I know. And we don't know the answer. Then what data is of the most importance for us to be watching to determine which camp is going to be right here? Well, the kind of things that I watch, I watch, for example, you know, I watch high bandwidth memory pricing. I mean, micron doesn't tell me, you know, what? They're negotiating with each customer, but there's a gray market where you can buy high bandwidth memory and you can find out how the prices are doing. I watch the lead times. You know, if I want so much of this memory, how long it's going to take me to get it longer, the lead time, meaning, you know, memory is going to stay in demand longer. There's still a big shortage. I kind of do some calculations based on all the capacity that's coming online. How much supply is there going to be? And then we project what the growth is going to be. And where do they come in equilibrium. And that's very important because it's not just a shortage of memory. It's what they're able to charge, right? So they're able to charge a lot right now. And if the demand and supply comes in equilibrium, then the prices are going to collapse. So those are the immediate things like memory. But overall I've watched that for all different kind of semiconductors. And then, you know, where is the demand coming from right now? It's coming from our assumption that AI is going to add to productivity, and the usage is going to keep on going higher and higher. But then there, you know, there are things there too. You know, there are Chinese models which don't cost us a lot, maybe sometimes even 1 to 10% of the frontier models. Now the market's calculations right now are, and I think they're probably correct, that about 80% of the economic benefit will accrue to frontier models, and only about 20% to the open rate models. But if that calculation is off, then that could have a big impact on how, you know, various semiconductors are used and what the earnings really are. And then after that, you know, there's a so this is another thing that I've seen in my couple of decades plus several times. So we have a cycle right now, which I would say is our chat bots and agentic AI that we're seeing now, that's one cycle, but then there's another cycle that comes right after that, and another cycle comes right after that kind of think of an ocean wave, one big wave after another. So various cycles can merge and overall impact can be even though each individual cycle is cyclical, overall, it turns out to be secular, right? So we, you know, we have autonomous driving. We'll have to see the adoption rate because that's a big user of semiconductor can drive up earnings with robotics coming up, that's going to be a huge user of semiconductors. But we don't know what the adoption rates of all those technologies are going to be. Right. We talk about SpaceX data centers, the quantum computing. And of course, you know, I think defense spending is going to keep on going higher and higher. And it's all the modern techniques, the drones, the lasers and all that. And then again, it's all semiconductors. It feels like we've entered August with this thinking that memory is so last month because you called it, obviously, we have seen this correction across the semiconductor space. I mean, I was looking at the Round Hill Dram ETF off 40% from recent highs. The average member drawdown has been quite severe. We were looking at SanDisk earlier today as well. I mean, Argus argues that it's a good entry point because of how much it has pulled back then. What exactly was the catalyst for that? Because the fundamentals look good. Is this more about the positioning, and then what is the catalyst for a rotation back into those bottlenecks. If the earnings are holding up and they've got this visibility that they're reporting. Right? Excellent question. You know, I wish it was so simple as we could just look at earnings and know where the stock is. Stock is going to go. But you know we all know it doesn't work that way. So as you know, I called correctly this semiconductor correction that has happened. And you know, this perfect example actually is 57% from peak to trough. And, and, you know, I monitor over like 100 different variables, but the two that really were very, very important to me. One was as we're getting into June, the sentiment was reaching extreme positive. And we have our own proprietary indicators, how we measure sentiment in various sectors. And the thing that I've learned over my decades in the markets is that sentiment is a contrary indicator. Very simple words, extreme positive sentiment. Better not buy. Be ready for a sell off. Okay. The problem with the sentiment is you can never tell it's not a timing indicator, right? Sometimes you can be off by a month or 2 or 3. So that's one. And the other one is. And that was my thinking, which has turned out very well, was that, you know, we know momentum crowd and people watch charts. And why? Because something's going up. You know, the leverage ETFs, they all dominate. But the market also has a lot of very sophisticated, very smart investors. So my thinking was that investors are going to start looking at smart investors. Well are these the peak earnings. And if they start looking at it that way then what are they going to do is they're going to sell when the earnings come and the momentum crowd buys. And you know micron was a perfect example right. Earnings came. It ran up to 1200 something plus it started running up and then fell because all the smarter investors saying it could be weakening. So we need to get out has been such a pleasure having you on the show. We wish we had more time to continue our chat, but we're going to