Has the Memory Cycle Broken? Plus: Nvidia & Broadcom’s $40B+ Financing Playbook

Ben Bajarin (0:05)

Hello, everyone, welcome to another episode of The Circuit. I am Ben Bajarin.

Jay Goldberg (0:11)

Greetings programs. I'm Jay Goldberg, and we're joined today by all sorts of avian noises.

Ben's chickens, my cockatiel.

Ben Bajarin (0:21)

I told my rooster it needs to be quiet during the podcasts, but it is a disobedient, a disobedient rooster. All right, let's kick this off with the earnings of the week, which was Micron. And a couple of things I think are interesting to talk about.

There is certainly no shortage of opinions on memory.

So one, let's talk about the earnings. And then two, does anything that came out on this change, like the thesis for memory? Because I backed into this, and before we talk about the earnings, but I backed into this. And essentially, while I think everyone agrees that the dollar value of memory has gone up, right? So if you've looked historically, it was a peak. Ebb didn't float as memory did, but as a peak, it might have gotten to $100 billion. And now people are saying, right, our model included, you could be at between a 600 or $800 billion, depending on ASP floor now. So the floor has changed, right? Big growth glows. The floor has changed. Nobody disagrees with that. However, it seems like the way the market is valuing these is that they're assuming that crash comes in 29 But like either that cyclicality value goes up and down between that new floor, but that essentially the wheels come off the train.

Not that it's an industry that needs to go up into the right. That's fine, right? But if bit growth continues and pricing degree leverage continues to some degree, and you have this new floor, that's where I think the exercise is, okay, are we thinking about even in some degree of cyclicality, the right forward assumptions here for Micron and some of these other names?

Jay Goldberg (2:22)

You used the C word, crash.

Ben Bajarin (2:26)

I mean, but that's what's...

Jay Goldberg (2:29)

Ben's calling it a crash in 29, everybody.

Ben Bajarin (2:31)

But that is what's being modeled. What's being modeled is demand destruction and a high degree of margin compression, which could, again, if they normalize to the 60s, great, we can run those scenarios.

But I think the reality is it's not being the sustainability of bit growth and some degree of pricing elasticity is certainly not in the long-term modeling.

Jay Goldberg (3:07)

There's all kinds of arguments people are making right now about where memory goes. I think your scenario calling for a decline, or I understand you're not really calling for that, but that's the scenario you laid out is which this keeps going into 2029 and then conditions worsen then whether they crash or not is a whole other story. But through 29, this keeps going through 29, and then we have some kind of, beyond that it seems it's too hard to forecast and we'll probably have some kind of reckoning. There are people who are even more bullish who say that no memory is fully structurally changed now. We have all these long-term agreements in place and we don't have the same whipsaw cycle boom and bust. It will be cyclical, but it will be much more muted cyclicality. I think that's the most optimistic outlook. And then there are other people who are saying, what we're seeing now is with the memory results are being driven by pricing and output bit growth is much slower, right? I think the company said DRAM and NAND are growing sort of in the 20s, low 20s for DRAM and mid 20s for NAND into 27, 28 And so I think the bear case would be we get to supply-demand equilibrium in 28 The market sees that and starts forecasting, starts getting much more pessimistic in some point next year.

And I'm not taking a stand here. I don't know what's going to happen, but I do think it's notable that prices doubled, right? Prices are basically doubling this year, and it sounds like there are agreements in place that pricing goes up again next year. But output is only in the 20s. And set against that, you also have all the memory-makers adding significant amounts of capacity.

So I think we get to some sort of parity earlier than that. But how that actually plays out in the shape of that downward curve when we get there is very unclear right now, right? You know, I think past cycles, everyone assumes that like it's memory cyclical and it goes for two, three years and it crashes and we go from 80 percent gross margins to whatever, 30 percent gross margins. And I think there's a reasonable argument people could make that, no, that's not how it will play out. There's lots of things that will smooth it. And I think, you know, I think for many people, what matters most is the cost of memory. It's just like everything is getting so expensive, right? They were talking about, because of agentic AI, which is driving CPU demand, that's driving demand for not the fancy HBM memory, but sort of cheaper LPDDR memory and other stuff that goes into CPUs. So even that category is getting squeezed.