Making money is important, but distributing it afterwards is even more crucial

The storage chip sector has strengthened for the second consecutive trading day, with the biggest catalyst coming from Sandisk.

The company has provided a very aggressive long-term profit guidance, and more importantly, it has addressed two questions that the market has been reluctant to give high valuations to storage stocks: the sustainability of this round of high profits and whether the money earned will ultimately be returned to shareholders. For the former, the company expects an 80% gross margin until 2030, and for the latter, it promises a 100% return of remaining cash to shareholders.

Currently, storage is somewhat similar to the shipping and coal industries in recent years. The cycle has not disappeared, but as high profits are maintained for a longer period, combined with dividends and buybacks, the market is willing to raise the valuation center.

Therefore, to determine whether cyclical stocks are still worth buying, one cannot just focus on "when the cycle will peak," but must also consider the sustainability of high profits, the profit bottom during the downturn, and how much cash shareholders can ultimately receive. Sandisk has at least begun to answer these questions.

Moreover, storage differs from shipping and coal in that demand is not entirely driven by traditional supply and demand cycles; AI is changing the entire computing architecture. HBM, high-capacity DRAM, enterprise-grade NAND, and even future HBF all have their own technological and product differences.

It can be expected that Samsung, SK Hynix, and Micron will also need to prove that high profits are not just a one-time phenomenon at the peak of the cycle, but can ultimately be converted into shareholder returns.

This point is also very important for the Hong Kong stock market, and today continues to revolve around performance trading, with JD.com and JD Logistics experiencing significant declines as a good example.

JD.com's Q2 performance cannot be considered poor; both retail gross margin and operating profit margin have improved, indicating that the core e-commerce profitability has not deteriorated. The reduction in subsidies, high base, and weak demand for consumer electronics were not entirely unexpected, but what truly impacted market sentiment was the first quarter of negative revenue growth.

Although the company has guided for a recovery in e-commerce in the second half of the year, the pace of loss reduction in Q2 for food delivery was relatively slow, combined with the need for investment in Jingxi, international expansion, and AI, there remains insufficient confidence in how much can ultimately be left for shareholders.

This issue ultimately points back to the macroeconomic situation. If domestic demand does not truly improve, the stock game among internet platforms will be difficult to end, and JD.com, Meituan, Pinduoduo, and even Alibaba are all constrained by the same logic.

Conversely, SMIC actually aligns very well with the current market preference for "profit quality."

The gross margin significantly exceeded guidance, and despite the continued drag of new depreciation on gross margin in a single quarter, the guidance continues to rise quarter-on-quarter, indicating that price increases are stronger than depreciation pressure. As a reference, some recent overseas companies have already anticipated further price increases next year, and domestic companies are likely to follow this trend.

The problem, however, lies in the trading aspect. SMIC is already a heavily weighted direction for institutions, and the market does not lack expectations for an improvement in prosperity, so even if performance exceeds expectations, the stock price reaction remains limited and may even easily lead to profit-taking.

Regardless, profit growth is just the first step; whether it can be sustained and converted into free cash flow, and ultimately whether it can return to shareholders, is the key to determining the valuation center