There has been a lot of noise about how DRAM and NAND pricing is about to collapse and companies that are focused on those chips are about to see their share prices collapse as well.
Most recent was the bear case from Goldman Sachs which laid out the argument that companies in the space like Micron, Western Digital and company were not worthy of an investment at current levels since DRAM and NAND prices were at their peak and this was the best it can get.
Incidentally shares of Micron finished higher on the week despite the downgrade from Goldman Sachs, albeit by a small amount. Micron finished last week up 2.6% at $28.93 per share despite Goldy taking its rating from a Buy to a Neutral and its accompanying price target down to $30 per share from $32 per share.
The reasons to remain optimistic if not even more optimistic on the DRAM/NAND makers are two fold with the primary rationale being the massive global buildout of datacenters. If one merely scans the headlines, he/she will find announcements almost weekly from the likes of Google, Amazon, Alibaba, Tencent and Baidu talking about the setting up a new datacenter.
There was a report from Macquarie, also last week, that stated that "datacenter builders are focused on system performance rather than cost control" (at present), which implies that DRAM/NAND memory makers are not facing any price pull or pressure to lower prices.
Another bear/kindly uncle argument is that DRAM makers like Samsung will saturate the market for DRAM and the analyst at Macquarie says that is not happening either. After reading his report my take is that the DRAM/NAND makers are in the middle of the sweet spot as far as their earnings are concerned and that is exactly how I am positioned.
Finally, I am in agreement that the PC and server business could more than likely see lower demand end-to-end for the current quarter (maybe even Q3:17) and and thus require less DRAM/NAND chips but smartphone demand will more than make up for the lower demand from the PC/serve segment.
Take a look at the following quote from the Macquarie report explaining exactly what is happening in the NAND market:
"Limited NAND supply to spot market leads to a spot price premium of 30-100%. NAND vendors have cut supply to the channel market due to strong demand from mobile and SSD. As a result, spot price is at around a 30-100% premium to contract price."
Pretty simple, no? Look for the companies in the space to report strong results when they report for the current quarter in the July-August reporting period.
Words to the wise.
(Long mu, amzn, googl, baba, long and short options on all)