This is a tightly reasoned distinction between a strategically important company and a properly valued company.
What I found especially useful is the way you separate CXMT’s actual DRAM business from the HBM future that investors may be attaching to it. China clearly needs domestic HBM capability, but the prospectus does not appear to direct the offering proceeds toward a defined HBM program. The market may therefore be assigning value to an option that the company itself has not yet demonstrated it is funding.
I am still learning the memory market, so I am cautious about drawing a firm conclusion from the recent correction. But the larger question your essay raises for me is whether Micron’s decline is merely a reset within a powerful memory cycle or an early warning about the financial structure surrounding that cycle.
Demand for memory remains substantial, contract prices have remained strong, and AI continues to require enormous amounts of DRAM and HBM. That makes a lasting collapse in the underlying market difficult to assume. But strong demand does not prevent equity prices from outrunning realistic earnings and production expectations.
The additional concern is leverage. South Korea’s market has become heavily concentrated around Samsung and SK Hynix while leveraged retail participation has increased. Meanwhile, Micron and SK Hynix are becoming more directly comparable and tradable across the U.S. and Korean markets. A valuation correction in one market can therefore alter sentiment and pricing in the other before the underlying memory contracts change.
That may be the broader tell here. The memory business can remain fundamentally strong while the equities built around it become financially fragile.
Your essay makes the CXMT valuation question unusually clear: the market must distinguish between present earnings produced by an exceptional shortage and future strategic value that has not yet been funded or achieved.
Thank you, Todd. This is the comment I was hoping someone would leave, because you have put your finger on the thing I walked right up to and didn't say out loud.
I located the fragility in the fundamentals. Peak earnings, the 30 percent cost gap, a denominator that reverts when DDR5 rolls over. But you're getting at something quieter and, honestly, more interesting. The equity can break before the contract does. And we just watched it happen. Contract prices were still climbing on TrendForce's June 30 print, and the stocks fell a fifth anyway. The Kospi tripped its breaker twice. Nothing in the actual memory business changed in those eight days. Something in the financial scaffolding around it did.
So I think your framing is the better one, and I'd keep it exactly as you wrote it: the business can stay strong while the claims stacked on top of it get fragile.
The one place I'd stay careful is leverage. It's real, and it matters, but it's hard to weight honestly without the position data. That Korean retail leverage figure in particular is one I haven't been able to run down to a primary source, so I'm holding it loosely. The thing I can still point to is the one that gets printed: two straight months of DDR5 contract decline. That's when your question and mine stop being two questions. Until then, I think we're both right, which is a more comfortable place to sit than it sounds.
Hey thanks for the reply. This is an interesting dilemma. Leverage using margin makes the market more vulnerable to a polar change of investor enthusiasm. Even without knowing the exact numbers, I’ve seen several writers mention how margin is now being used with (more or less) reckless abandon. That’s what happens in an exciting upward climbing market. Investors convince themselves it’s dependable and decide to make money in multiples of what their capital investment would allow if they didn’t use margin. That mentality is what makes that market increasingly fragile and exposed to the potential of a break in some underlying part of the market structure that isn’t as obvious at the moment.
I think that the possibility for a polar change exists in the South Korean memory chip market because it is tied via technology development to the US chip market. The US is where the break may come. The Fed has a new leader in Kevin Warsh and he’s hawkish about inflation. According to Fed Governor, Christopher Waller inflation is up and rising—so the Fed is now focused on inflation. If the Fed decides to raise interest rates, that could break a fragile market. It would represent a polar shift in the market’s underlying structure. Higher interest rates make investors think about shifting over to government bonds since they are yielding higher and that is where, how, and why a more substantial break may occur in the memory chip market which is, like so many other markets, priced above fundamentals because of all the excitement in this AI driven market.
I don’t mean to sound bearish and would prefer to watch the market continue to rise, but I hear quite a few analysts say a correction is imminent. The real question might be: Since there is a real technology driven growth source in the market due to AI, how big of a correction is likely? Or maybe the bulls just keep charging forward?
This is a tightly reasoned distinction between a strategically important company and a properly valued company.
What I found especially useful is the way you separate CXMT’s actual DRAM business from the HBM future that investors may be attaching to it. China clearly needs domestic HBM capability, but the prospectus does not appear to direct the offering proceeds toward a defined HBM program. The market may therefore be assigning value to an option that the company itself has not yet demonstrated it is funding.
I am still learning the memory market, so I am cautious about drawing a firm conclusion from the recent correction. But the larger question your essay raises for me is whether Micron’s decline is merely a reset within a powerful memory cycle or an early warning about the financial structure surrounding that cycle.
Demand for memory remains substantial, contract prices have remained strong, and AI continues to require enormous amounts of DRAM and HBM. That makes a lasting collapse in the underlying market difficult to assume. But strong demand does not prevent equity prices from outrunning realistic earnings and production expectations.
The additional concern is leverage. South Korea’s market has become heavily concentrated around Samsung and SK Hynix while leveraged retail participation has increased. Meanwhile, Micron and SK Hynix are becoming more directly comparable and tradable across the U.S. and Korean markets. A valuation correction in one market can therefore alter sentiment and pricing in the other before the underlying memory contracts change.
That may be the broader tell here. The memory business can remain fundamentally strong while the equities built around it become financially fragile.
Your essay makes the CXMT valuation question unusually clear: the market must distinguish between present earnings produced by an exceptional shortage and future strategic value that has not yet been funded or achieved.
Thank you, Todd. This is the comment I was hoping someone would leave, because you have put your finger on the thing I walked right up to and didn't say out loud.
I located the fragility in the fundamentals. Peak earnings, the 30 percent cost gap, a denominator that reverts when DDR5 rolls over. But you're getting at something quieter and, honestly, more interesting. The equity can break before the contract does. And we just watched it happen. Contract prices were still climbing on TrendForce's June 30 print, and the stocks fell a fifth anyway. The Kospi tripped its breaker twice. Nothing in the actual memory business changed in those eight days. Something in the financial scaffolding around it did.
So I think your framing is the better one, and I'd keep it exactly as you wrote it: the business can stay strong while the claims stacked on top of it get fragile.
The one place I'd stay careful is leverage. It's real, and it matters, but it's hard to weight honestly without the position data. That Korean retail leverage figure in particular is one I haven't been able to run down to a primary source, so I'm holding it loosely. The thing I can still point to is the one that gets printed: two straight months of DDR5 contract decline. That's when your question and mine stop being two questions. Until then, I think we're both right, which is a more comfortable place to sit than it sounds.
Hey thanks for the reply. This is an interesting dilemma. Leverage using margin makes the market more vulnerable to a polar change of investor enthusiasm. Even without knowing the exact numbers, I’ve seen several writers mention how margin is now being used with (more or less) reckless abandon. That’s what happens in an exciting upward climbing market. Investors convince themselves it’s dependable and decide to make money in multiples of what their capital investment would allow if they didn’t use margin. That mentality is what makes that market increasingly fragile and exposed to the potential of a break in some underlying part of the market structure that isn’t as obvious at the moment.
I think that the possibility for a polar change exists in the South Korean memory chip market because it is tied via technology development to the US chip market. The US is where the break may come. The Fed has a new leader in Kevin Warsh and he’s hawkish about inflation. According to Fed Governor, Christopher Waller inflation is up and rising—so the Fed is now focused on inflation. If the Fed decides to raise interest rates, that could break a fragile market. It would represent a polar shift in the market’s underlying structure. Higher interest rates make investors think about shifting over to government bonds since they are yielding higher and that is where, how, and why a more substantial break may occur in the memory chip market which is, like so many other markets, priced above fundamentals because of all the excitement in this AI driven market.
I don’t mean to sound bearish and would prefer to watch the market continue to rise, but I hear quite a few analysts say a correction is imminent. The real question might be: Since there is a real technology driven growth source in the market due to AI, how big of a correction is likely? Or maybe the bulls just keep charging forward?