Long post, but some thoughts on what happened in t

Long post, but some thoughts on what happened in the market today…

Today was a particularly weird storm of price action because the logic going into the open was as follows:

- $Micron Tech(MU.US) crushed, saved the AI trade

- AI stocks should go higher due to MU proving its not cyclical, this should help the broader market get a lift

Instead, what we got right before the open…

- $Apple(AAPL.US) announces massive price hikes and effectively uses MU earnings to be like, “See! It’s not us, but if memory gets 86% margins, then we have to raise prices!”

- This happens right after the hottest PCE in 3 years is reported, even with oil (the biggest proponent of inflation the past few months) still coming down

- Microsoft then joins the party and raises prices across all XBOX products, once again citing memory costs

Market then proceeds to take a nasty dip in every sector…except Memory.

I think what is happening here will be studied for a long time. The hyperscalers, the companies that are RESPONSIBLE for $Micron Tech(MU.US) and $Sandisk(SNDK.US) being multibaggers, are getting destroyed because…well they can’t buy back stock, they can’t get FCF positive, and they don’t have memory’s pricing power.

In fact, this is what Melius Research came out today and said:

“Why bother owning a hyperscaler who can't buy back stock any time soon? Micron can start buying over $25B/quarter in stock during CY27. Memory will go down as THE BOTTLENECK of ALL BOTTLENECKS for this AI era. MU said that current conditions last after calendar 2027, basically guaranteeing buybacks of epic proportions, especially next calendar year.”

We are at the point where the sell-side is saying that owning the best companies in the world makes no sense when you can own the bottleneck of all bottlenecks.

Here’s the thing: I don’t know if Melius is actually wrong.

My gut tells me that 86% gross margins will not last forever, but as long as the hyperscalers are willing to pay, then the structural logic for market participants comes down to a simple question: why own the companies paying the capex over the companies benefiting from it?

The problem is obvious: if memory inflation continues to be intense, it will affect every part of the market. From automotive to datacenters to PCs. $NVIDIA(NVDA.US) gets to have a tax because it’s building very IP-heavy products. Will the market allow something like memory, that is not IP-heavy, to force consumers globally to pay significantly more for the products? Also, do the memory makers even care because as long as they control supply, they can control pricing?

I’d imagine the big tech companies either lower capex to stop paying the cost, keep paying the cost, or try to innovate. They likely won’t lower capex and will most likely continue paying the cost, so there probably are some elements of them trying to focus on innovating in this area…but if there won’t be any menaingful cutoff in capex, the memory story continues.

The market fell today because higher inflation means more of a chance for rate hikes. I mean, NVDA went below 200 as MU hit all time highs. NVDA’s suppliers are more valuable than NVDA’s biggest customers. As a result, it’s creating a type of AI-flation that basically led the market to sell off everything else.

Not sure how this plays out, retail continues to buy the dip and today’s red probably gets bought…especially as earnings continue to grow…but we are in a new paradigm for how this market gives a premium to a stock and if you have pricing power over a component that matters to build AI vs being a companies that actually uses AI, you get a premium.

Source: amit