Why Micron Could Keep Surging After Its Massive Revenue Run

SPEAKER_1 (0:00)

Joining me right now is Mike Khouw, Chief Strategist at Yieldmax. I'm so glad you're with us, because the big news is that you have a single option strategy here, ETF, on Micron, which is reporting tomorrow. MUY launched today. Tell me a little bit about it. Why now? Why MUY?

Mike Khouw (0:19)

Well, so MUY is, as you just indicated, it's an option income strategy based on Micron technology, and it's designed to generate current income distributed weekly through an actively managed option strategy. We sell covered call spread, so we take a synthetic position in Micron Technologies and then sell call spreads against that to generate that income.

Unlike common covered call strategies, while selling some upside can reduce your upside participation a bit, unlike covered calls which cap your upside completely, this will allow participation to kick back in if the stock really takes off. Right now, the options market is expecting pretty big moves. I think the implied move in Micron by the end of the week is about $81 higher or lower.

SPEAKER_1 (1:05)

So what strategy are you putting in place now for Micron since you're using this whole strategy with the covered calls and the spreads in order to do that? Which way do you see Micron heading? What are you betting on since this is actively managed?

Mike Khouw (1:20)

Yeah, so well, this strategy is always going to have a net long exposure to Micron. And we know that there's a lot of interest in trading options on it because actually if you look at it on a notional basis, Micron actually has even higher options volumes when you factor in the high stock price than names like Nvidia and Tesla lately. This is really sort of the hot stock ever since it sort of crossed that trillion dollar mark. So right now we're long a synthetic position in Micron Technologies, and then we are short, short dated call spreads. So we're short the 1080, 1120 call spread in the stock, and we collected probably about 32% of the distance between the strikes to do that. If the stock stays here or goes modestly higher, we'll just keep that premium. And of course, that's true if the stock goes lower.

If it really makes a move to the upside, the trade-off is you're going to give up a little bit of that. But above 1120, we'll begin to participate fully with the stock's upside move, if it should get that high.

SPEAKER_1 (2:18)

Look, I know since 2024, we've seen that sometimes up, sometimes down depending on the quarter. But most of the analysts are pretty positive on this. I saw JPMorgan talking about a beat and raise. Others saying that the fundamentals technically look good. The stock has been up about 12 percent. I know you also have the Wirem ETF because you look at the group. Are there some trends in place that are of interest here?

Mike Khouw (2:46)

Yeah, I think the interesting thing that's going on with all of these names, because now we're getting into the issues of scale, the laws of large numbers. Maybe one of the reasons why strategies like this make more sense in some of these biggest companies is that they've experienced such phenomenal growth rates already. Just take a look, Micron, their revenues are up more than 10x what they were back in 2023, just three years ago.

This growth rate is phenomenal. It's one of the reasons why this thing is trading at less than seven times estimated forward earnings. But that growth rate is probably not likely sustainable in the long run, because these companies, just a handful of them, would overtake the entire economy in no time flat at that rate. But I think the picture is still quite good. We're not seeing any capex slowdown. That suggests that we're going to see some strength for a little while yet.

SPEAKER_1 (3:38)

When we talk about the sustainability of AI demand, chip pricing, that's been a part of the language the whole time.

Of course, so many of the guests who come on say we're just in the early innings. What do you think about the pricing power of some of these names too?

Mike Khouw (3:55)

Well, I think you actually are hitting on one of the most important points. It's often said that the cure for high prices is high prices. We have a handful of companies right now that are really dominating the space. Micron is certainly one of them. Nvidia is obviously another one.

When you have a situation where companies like this have gross margins that are close to 80 percent, that's what we're dealing with. We're looking at over 80 percent gross margins, close to 70 percent net income margins after tax. That kind of thing is likely going to draw in some competition. That's the first thing. We don't know where that competition is going to come from, but an innovative economy eventually creates that. The other thing is that as the supply and demand imbalance normalizes a little bit, which is probably 18 to 24 months off at least, then you might stop seeing quite this demand driven margins that these companies have had. But take a look at where they're priced. I mean, they are actually priced for lower earnings in the future. I mean, if it's trading at 6.9 times forward earnings, obviously the market's not pricing in that that's going to last forever.