"Phenomenal" Earnings v. Cyclical Concerns: MU Faces Key AI Questions

SPEAKER_1 (0:00)

For more, let's welcome in our panel, joining us now Yaël Ossowski, the Deputy Director of Consumer Choice Center, and William Kerwin, Equity Analyst over at Morningstar. Great to have you both on. Yaël, let's start with you. Before we dive into Micron's earnings tonight, let's step back and take a big picture look at the memory market right now. How are you describing currently the supply and demand environment that you are seeing, and what's driving the strength that we're seeing across these names?

Yaël Ossowski (0:27)

Well, the best I can say is sold out. Order books are pretty filled. There's all kinds of demand. I think the hyperscalers, they're obviously ordering so many of these products, putting memory next to the chips, doing that in every data center that you have in America, also globally.

Realistically, there are only three companies that do this. We have Micron and you have the Korean companies. You can see that there's this push for a decentralized AI. There's a lot of people talking about sovereign AI.

It's not all just in the frontier companies. I think that's one thing that's very frustrating for consumers who use AI technology. It's not just about the big two in the room. It's also all of the different brands, it's all the different tools, and then also the tech stack that's underneath it. I do think there's going to be more of a push towards decentralized AI. I wish Micron would do a lot more direct to consumer. They abandoned that in the last year to focus on the hyperscalers. But there's definitely a move to get a lot more chips. If you look online, people shopping on Amazon, trying to figure out what they can host at home, that is a big conversation they're having right now.

SPEAKER_1 (1:26)

William, I'm looking at your valuation. You've got an 850 per share valuation as we head into the earnings today. We're trading at about 1,073 and some change. What are you expecting to hear from Micron today?

Also, what are you expecting the market reaction to be?

William Kerwin (1:44)

Sure thing. Well, I think it comes down to what we expect over the short term, maybe the next 12 to 18 months, and then what we expect thereafter. So for the quarter that we expect to print tonight, and really for the ensuing couple of quarters from here, we think there are going to be some phenomenal results. We think there will be a huge beat tonight, beat to guidance for the next quarter.

We really think that there is a lot more room for this cyclical upswing in prices to keep going. Now, when you take a longer term view, we expect these prices to peak as we get into the first half, and maybe midway through calendar of 2028, as Micron, Samsung, SK Hynex, all of its peers start bringing a lot of new supply online to fit this massive hyperscaler AI demand. And that's when we start to get a little bit worried, and that leads to some of our bearishness on the valuation, is that we think we're kind of in the sixth or seventh inning of this cyclical upswing, and there's a lot of cyclical downside risk for longer term investors.

SPEAKER_1 (2:42)

And Yaël, I'd love to get your thoughts on that too. As you said, you view us as sort of being essentially sold out here. In terms of the expectation for more price increases and where the peak might be, how are you looking at that?

Yaël Ossowski (2:56)

Yeah, the peak is not sure. I mean, again, there's so much that's coming online right now, and there's just not enough memory, you know, as much as we'd like to. And, you know, I'm not the biggest guy for predicting what the price would be. But I know just consumer side, seeing what people are buying online, seeing the hyperscalers, what they're installing. And I think another point to mention is, you know, the CHIPS Act removes this kind of restriction on stock buybacks in December.

Huge opportunities there. So there could be all types of new kind of cash flow coming into the company there. And you actually could see again, more of the sovereign AI movement. You know, we see Jensen and we see Anthropic and OpenAI meeting with Trump, talking super intelligence. I mean, now there's a lot of political backing that's just outright for this movement. And I think a lot of the kind of push back against data centers, a lot of that will be alleviated. So perhaps projects that we wouldn't think about doing before actually will get built. I think that's very good and there could be a lot of opportunities that we're not looking out for. Obviously, the market knows best. A lot of stuff is priced in, but I still think there could be some surprises.