Micron and the memory cycle
Memory is a commodity. The P/E looks cheapest at the top of the cycle, which is exactly when you should be most careful.
Read a cyclical semiconductor company without being fooled by its multiple.
How Micron and the memory cycle works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The market moves first, and recovers first
Shares fall before the data does and start climbing while the news is still uniformly awful. Waiting for the news to improve means buying after the recovery has happened.
- 1
Memory is a commodity, not a moat
One manufacturer's DRAM is interchangeable with another's. There is no brand, no switching cost, no network effect. Price is set by supply and demand, and the producers are price takers, which makes this a mining business that happens to be conducted in a clean room.
- 2
The cycle is driven by capacity, and capacity takes years
Prices rise, everyone builds fabs, the fabs all arrive at once two years later, supply floods the market, prices collapse, everyone stops building, supply tightens, prices rise. The lag between the decision and the capacity is what makes the cycle so violent and so repeatable.
- 3
Which is why the P/E inverts
At the top of the cycle earnings are enormous and the P/E looks tiny, so the stock screens as cheap moments before profits collapse. At the bottom, earnings are negative and the P/E is meaningless or absurd, which is often when the shares are actually worth buying.
For a cyclical, a low P/E is a warning and a high one can be an opportunity. This is the single most counter-intuitive rule in equity analysis.
- 4
AI demand is a new variable, not a repealed law
High-bandwidth memory for AI accelerators is a genuinely tighter, more differentiated market than commodity DRAM, and it has changed the mix. It has not repealed the capacity cycle. Everyone is building HBM capacity too.
You can explain why a cyclical stock is dangerous precisely when its P/E is lowest.
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Memory is a commodity. The P/E looks cheapest at the top of the cycle, which is exactly when you should be most careful.
The near-monopolies and the commodities, side by side, because they look identical from outside and they are not.