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Elon Musk just replied to one of our analyst’s tweets to debate the threat of China’s manufacturing prowess in the memory space - here’s everything you need to know…
First, a quick detour.
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ELON VS. MELVIN ON CHINA'S MEMORY THREAT 🇨🇳
Last Thursday, Samsung reported ~$80B of operating profit, making it the biggest quarter in its history.
Yet over the past week, the stock has fallen ~15%.
In our Oct 7 edition, Melvin (our AI and equities analyst) said he'd give Samsung a slightly bigger slot than Micron if he were building his portfolio from scratch.
We called those earnings the first test of his theory. Samsung passed... and then China reared its head.
Over the weekend, CXMT (China's biggest maker of DRAM, the short-term memory chips inside servers, PCs and phones) said it's made progress on a denser chip design called 4F².
It fits ~50% more memory cells into the same space, and CXMT plans to sell server memory built on it by year-end.
Investors didn't wait to find out whether it works. On Monday, Micron, SK hynix and Sandisk lost ~$108B of market value between them.
Then, come Tuesday, Korea's KOSPI (its main stock index) fell 5.46%, bad enough to trigger a "sidecar" (a short pause on automated trading).
SK hynix (the world's #2 DRAM maker) fell 10.09%, and Samsung fell 7.39%. 👇
Source: Naver Finance, Korea JoongAng Daily
Samsung and SK hynix make up about half the KOSPI, so when they drop, the whole market drops with them.
CXMT is now the world's fourth-biggest DRAM maker, and its share of global DRAM revenue jumped from 7.6% to 9.5% in a single quarter (according to TrendForce).
It's also building toward 600,000+ wafers a month (the silicon discs chips are cut from), which would roughly double its capacity.
Melvin still thinks the market got way ahead of itself.
His three reasons:
- Designing a chip and making it at scale are two different jobs. CXMT still has to prove its yields (how many usable chips it gets per wafer), pricing and volumes.
- The announcement covers standard server memory. HBM (the stacked memory that sits next to AI chips, where the fattest profits are) isn't part of it.
- Sandisk makes NAND (the storage chips inside SSDs), not DRAM, so selling it on this news makes even less sense.
He says investors are mixing up a real long-term threat with an immediate change to the industry - i.e. this won’t immediately solve the memory shortage.
He posted that on X… and Elon Musk replied.
Elon's view is that once China learns to make something, it can often outproduce the rest of the world combined.
He also points out that RAM was a low-margin commodity only ~3 years ago, and China seems to be solving standard memory chips fast.
But even he thinks the newest HBM designs will be harder to crack.
I.e. They both see HBM as the moat. They disagree on how much the rest of the memory market still matters.
Samsung's own numbers show how quickly memory stopped being a commodity business...
A year ago, Samsung made ₩12.2T of operating profit on a ~14% margin. Last quarter, it made ₩107.4T at a ~55% margin (nearly 9x more).
Profits like that attract competition, especially from a company founded with Chinese government backing.
Vincent (another of our AI analysts) thinks the memory giants could hold up for a while yet, at least at Micron.
Long-term deals, mostly at agreed prices, cover an estimated 35%+ of Micron's revenue through 2030.
Micron also expects demand to keep outrunning DRAM supply through 2028.
At ~6x next fiscal year's expected earnings (you pay ~$6 for every $1 of forecast profit), he thinks Micron looks cheap.
What decides who's right, between Elon and Melvin:
- Whether CXMT ships 4F² server memory in volume by year-end.
- Samsung's full Q3 results later this month, which include the HBM details its early numbers left out.
If CXMT ships on time and HBM keeps its pricing, Elon and Melvin could both end up being right.
Btw - Melvin is still up ~100% on his Micron position, even after this week's drop.
(That’s what getting in early gives you.)
To see his next move the moment it happens, try Milk Road PRO for a buck for 7 days.
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