No TAM Troubles, The Debt Debate, and a Defense Deficit 7/21/26

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**Kelly Evans** (1:00)
You're listening to The Exchange. Here's today's show.
Leslie, thank you very much. Chips and crypto names are powering the markets higher today, along with a raft of earnings movers. I'm Kelly Evans and welcome to The Exchange. Shares of 3M are soaring 9 percent and leading the Dow. The company had better than expected earnings and revenue, raised guidance and is becoming an AI play, as it deploys optical technology to customers like Microsoft. Meantime, Cisco, they are now debuting a low-cost AI model. Yes, Cisco. Could that be another open AI killer? We have those details in a bit. And of course, we're watching shares of SpaceX. Popping about 6 percent and 7 percent now today, as Elon Musk warns short sellers that their survival probability betting against the company is very low. But let's begin with the rebound in semis today, up five and a half percent now, though still down about 13 percent from their June highs, amid a raft of cheaper AI models and cheaper Chinese component makers. Our next guest says, all of these worries are misplaced. The market is listening to these words right now. Vivek Arya, Senior Semi-Analyst at B of A Securities. It's great to have you here, Vivek.
This trade is showing it still has plenty of juice, plenty of life left in it. And why do you think that this area has been too quickly taken out to the woodshed?

**Vivek Arya** (2:18)
Sure. Hi, Kelly.
I think tech has always been deflationary, right? Whether we look at the PC era, whether we look at Internet, whether we look at smartphones, whether we look at cloud computing. So technology has always been deflationary. That's because there are a number of global forces that come together to drive the most efficient infrastructure. And I think what we are seeing right now is there was a lot of focus on the frontier model developers in the US. And now you see the Chinese model developers come to the front. And I think that competition can only be a very good thing for the enabling infrastructure layer.
So I think the fundamentals are very strong. The demand environment is very strong. Supply is very well stabilized. But we just came from a quarter where the semiconductor index ran up over 80 percent. So I think a little bit of a breather was probably to be expected. Okay.

**Kelly Evans** (3:11)
But you say the bigger concern a lot of people have, which is here come cheaper competitors, whether they're from China or the one we'll talk about later in the show. Here come cheaper CXMT and these other component makers, which may be lower-cost producers. And we've all seen this playbook before. When the lower-cost producer comes into the market, it tends to set the price and displace the other. So why shouldn't holders of Micron and Western Digital and Sandisk and all of these names be a little bit worried about that?
Sure.

**Vivek Arya** (3:38)
So let's separate the places where the competition is happening.
The large-language model layer, that's where you're seeing the competition between OpenAI, Anthropic, all the new Chinese open-source models. And by the way, there are a number of open-source, open-weight models that are available in the US also, including one from NVIDIA. That place is certainly getting very competitive, but we think it actually democratizes the availability of that large-language model and the layer. But where you have real entry barriers, where you have the larger competitive modes, is in the semiconductor layer. You mentioned CXMT. CXMT does not produce any high bandwidth memory or any of the advanced NAND memory that is required for the AI layer. So I think the CXMT competition that is going to come, that is only going to help alleviate the shortages that are in the low-end consumer part of the market. They will go after the PC market, they will go after the phone market, that are not being served right now, because all the capacity is moving to AI. So we don't think that competition means much.