InmanRoshi

Today I met with a veteran investor who argued that memory stocks are not cheap even at a P/E of 3. Below is an edited version of our conversation. Memory LTAs are basically meaningless. The best the LTAs being signed today can do is get customers to shoulder part of the memory makers' capex. Once prices fall, customers will gladly forfeit their deposits (prepayments) and walk away from the LTAs. Historically, whenever prices fell more than 60% from the peak, customers broke their LTAs even after signing them. So even if a 2027 shortage is certain and the stocks trade at a P/E of 3 on 2027 operating profit, 2028 operating profit is uncertain, which makes it hard to justify a higher valuation. He went on to argue that even if 2028 operating profit were certain, we would still have to account for 2029 operating profit. I pushed back and asked why the market doesn't discount TSMC the same way. Why does TSMC get such a high valuation? Wouldn't TSMC also take a big hit if the AI boom fades? His answer: the problem was how violently memory prices rose in the first place. If memory makers had raised prices in a healthy way like TSMC, it might be a different story. But because they hiked prices like a commodity, the market has no choice but to treat memory stocks like commodity stocks. Even if memory makers stay in shortage through 2030, he said, the market will price in the risk of oversupply in 2031. He closed his argument this way: even at 3x 2027 earnings, if memory prices fall in 2028 by enough to break LTAs, that 3x multiple on 2027 works out to 7.8 to 10x on 2028. So current valuations are not cheap.

When the coffee shop venue owner is also the guitarist for Suicidal Tendencies, you don't just order an espresso, you invite him up to play "Institutionalized" ! Somerville School of Rock “Institutionalized” Epic student collaboration. ☕️🎸

I dont think the AI bubble can really catastrophically burst like a 2000 or 2008 because that era had widespread true believers in internet/housing, whereas there is too much cynicism in AI even among the bulls

The worst-performing Democrats in competitive Senate races were the candidates Bernie endorsed. (link in next tweet, no paywall)

The defense industry long ago made a decision to be mostly apolitical, with a slight right lean. For some reason a portion of tech decided to strongly throw their lot in with the right, culturally and otherwise. This was dumb. US politics change like the tides and the work of the tech industry is too important for civilization for us to get tied in with the far right. We should stop wearing suits and talking about the fall of the west. We should stop trying to be based. We should get back to work.

Imagine this narrative: Dem sweep is bullish AI because everyone spends less on capex and diffusion has time to catch up to the buildout. Labs can’t miss on revenue bc they are compute constrained. No duration mismatch. No blowups. Everybody back in the pool

The discourse has been people moving to red states but over the years I’ve heard so many coastal people say they won’t move to red states so it could shift who’s willing to move.