A few thoughts on the topics in the thread,
To be able to invest in Micron investors will have to overcome some previous bias about Micron. Until maybe around 2022 I was not aware Micron was in business as I associated them as a 1990s PC maker that had fallen off. When I’d hear Micron this image of a Windows 95 PC sums up what I was thinking,
There is another bias I had that this is just a RAM maker with stiff competition from Asian manufacturers who can probably deliver at a better cost. We’d typically associate RAM back then with getting better graphics on the latest PC game, or getting an upgraded phone. It is only recently in the past few years that RAM became essential in a new market for AI systems. Originally it was GPUs that were the bottleneck for building AI systems, but now RAM is the bottleneck for building AI systems.
This also means that Micron and other RAM makers have pricing power because demand is far exceeding supply. That in turn is making margins and profitability skyrocket, each two factors we would look for in any Saul stock.
The third bias I would mention is the price of this stock was not too long ago below $100. Something to keep in mind the prospects for this company were dramatically different when the price was $100. I sold Micron back in December 2024 and here is what I wrote,
Micron reported a disappointing guide where the long trend of sequential revenue growth would be broken. Unfortunately this quarter was hit by the roughly half of the consumer side guiding for poor sales. This is apparently the result of phone and computer makers having stock piled memory, and now they are burning through that inventory before processing more. This glut in the market is still playing out so I’d like to see more clarity around that. The other side of the business which does memory for AI systems is doing extremely well, however these sales are already booked far in the future so not a lot of surprises there.
Does that sound like the same company we are discussing now? The current situation is radically different where the company cannot keep up with demand even spending 20B in CapEx to build plants as fast as possible. That’s in addition to raising prices which is doing nothing to slow down the demand.
Another point I would like to challenge is that demand for this business can drop off suddenly. The company’s product for High Bandwidth Memory is already sold out through 2026, so we know these sales are at least booked. The company’s older style DRAM is also seeing increased demand as AI networking companies such as Credo are innovating against this older style RAM. That means the DRAM pricing is going up and demand is going up there too.
You see nearly every hardware maker in the industry now saying sheepishly, we actually are not seeing a slowdown in our own business. Companies like Sandisk, SuperMicro, and Micron are posting huge guidance up with demand that is even surprising them how fast it is ramping. There’s also companies like Astera Labs, and Credo saying we have visibility well beyond 12 months. They are working hand in hand with the hyperscalers who are looking to secure hardware for 2027 and 2028 already.
Is there a possibility that hyperscalers in tandem all trim their CapEx spend over night? I see that as a low probability outcome. The more likely scenario is one or two hyperscalers slows first or a couple companies start saying 2028 looks less certain. Many on these stocks would likely take a big hit but that is a scenario which could potentially be years away. I also do not think we can invest always being afraid on the next Black Swan. In the semiconductor space this would be a disruption to Taiwan. Again, what if that Taiwan scenario does happen but it’s five years from now, we will have missed out on 5 years of incredible gains.
With regards to predictability in a stock or a business, I would not really consider predictability to be a character trait I’m really looking for on results. I’m more looking for a company which has the right probability or potential to surprise the market, which by definition means its an unpredictable company.
An example would be a SaaS company that is guiding for 480-500M and growing predictably 30% year over year. The chance that this company lands their revenue somewhere between 500 and 515 is pretty high, and their guidance is likely to be 520-540M or slightly above the run-rate. Even though the business is growing predictably the market is unlikely to rally for the stock behind this result. However, if that same SaaS company posts an unpredictable result way outside of the range of 570M because usage went up on their product, you could see that stock rally 50%+
There is one part of Saul’s Knowledge Base that I have completely incorporated into my strategy. It boils down to this sentence,
A company that I can hope will at least triple or quadruple
Previously I knew I wanted to find companies which had tremendous upside, but I had never quantified how much I was looking for. I believe tripling in the right amount to have as the minimum, because this rules out many stocks which could double just on their valuation. There’s plenty of companies which have the potential to double just because they are a $10 stock that should be worth $20.
In my strategy I also feel it is important to build upon that statement of triple or quadrupling which is to quantify the time frame we want this outcome in. There’s plenty of companies which will likely triple if our timeline is 10 years for that outcome. Setting the bar this low would allow us just to have a portfolio of hyperscalers. The time frame I mention in my strategy videos is 1-2 years for a company to 3-4x. This means the company needs to have huge upside in the near term.
Having huge upside in the near term typically means a stock is fairly unpredictable. Tying this back to Micron they company is raising revenue guidance 38% qoq to 18.7B and has margins going up 3000 basis points yoy. There is simply no other company of this size in the entire market that is close to these numbers. However, this also means the company is going to be unpredictable in a sense. They got a big step up in guidance but we don’t know where they will guide to next. If they are able to guide again to surprise the market which is a realistic possibility, then the stock is likely to rally a lot more.
