Twitter Roundup (Week of 3 Nov 25)
Discussions around re-rating memory stocks and the impact of recent cooling M&A
This is a new series of posts that rounds up discussions on Twitter that caught my eye. I hope to keep this easy to understand for a wider audience while still being useful for busy investors who are not as terminally online as I am.
Should memory manufacturers no longer be valued like cyclical stocks?
This discussion stems from Semicon Sam’s argument that memory stocks should be valued on the basis of Price to Earnings ratios instead of Price to Book ratios because of newfound earnings stability and growth, leaving behind a history of cyclicality and frequent oversupply.
The counterargument was chiefly led by Evergreen, who argued the new paradigm required, among other things:
Discipline not to over-expand capacity and formation of a global cartel. In reality, the players are incentivized to publicly say they are being disciplined while actually increasing capacity.
Samsung abandoning its strategy of being a low cost scaled producer.
100% of excess profit being returned to shareholders instead of being ploughed back to wafer fabrication equipment capex.
Semicon Sam conceded that Samsung and SK Hynix would likely continue to invest in capex rather than return capital to shareholders and that memory might not go from cyclical to structural growth.
What does this mean for you? Well if you are sitting on a large profit on names that are unlikely to stop being cyclical you might wish to cash in, being disciplined enough to avoid chasing the last 20 to 30% of upside.
Further, if you believe that memory players will splurge on capex, then you may wish to consider semiconductor equipment manufacturers such as ASML and Applied Materials. The memory capex upcycle arguably barely started for them, which is relevant for Metasurface Technologies, a company we profiled earlier.
Cooling M&A
The first law of thermodynamics (the conservation of energy) dictates that virtually all electrical energy consumed by the server racks within a data center is converted into heat. This heat has to be efficiently removed to maintain optimal performance, reliability, and lifespan of very expensive equipment.
On Thursday, Amazon’s Andy Jassy took to Twitter to promote their “new” cooling solution.