Why Memory Stocks Are Suddenly Selling Off
Memory Stocks Are Collapsing!
Why?
If you can't articulate the reason, you shouldn't be investing in memory.
1. Memory is a commodity and demand is inelastic, meaning suppliers have pricing power in an undersupplied market and are screwed in an oversupplied market. Right now, we're undersupplied, but for how long?
2. Memory is defined by huge capex cycles and capex is going up. Don't want to invest because you want to keep your high margins? Someone else will. $Samsung Electronics Co., Ltd.(SSNLF)$ , $SK hynix(SKHY)$ , and $Micron Technology(MU)$ are all upping capex because they have to. Eventually, that leads to oversupply, see #1.
3. China isn't watching idly. They've already stepped in with huge DRAM expansion, which is lower level than HBM, but will ease the shortage up and down the commodity supply chain.
Stocks peak BEFORE financials show any signs of weakness. Of course, executives are saying this time is different. Can you imagine if they said, "our margins are definitely going to zero in 3 years, but we're going to get while the getting is good."?
That would be INSANE!
But the market is forward looking.
And DRAM prices are already coming down.
Supply is coming to market.
Customers are optimizing for memory rather than treating it like a cheap commodity.
Commodities are going to commodify and that means huge downside, even if P/E multiples are low.
I hope this helps.
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