GM. This is Milk Road Stocks, the newsletter that's basically a cheat code for your brokerage app.
Today we’re putting Micron and Samsung in a cage, along with a rusty knife, and seeing who comes out alive.
First, a quick detour.
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WHY MELVIN WOULD SWAP MICRON FOR SAMSUNG 🧠
Last week, a PRO member caught one of our analysts in a contradiction.
Melvin (our AI and equities analyst) keeps saying Samsung will beat Micron over the next year. But Micron is one of his biggest positions, while Samsung is one of his smallest.
So the member asked him: if you rebuilt your portfolio today, would you still size it that way?
Melvin said the sizes only reflect when he bought each stock - and if he started from scratch today, Samsung would be slightly bigger.
Micron's ride with Melvin hasn't exactly been smooth...
Melvin first bought it in March at ~$380, sold the lot two weeks later when Google's TurboQuant research (a way to shrink how much memory AI models need) spooked memory investors, then bought back in at ~$364 two days after that.
Micron now trades at ~$1,068, and his position is up 129%.
That's been the story across memory all year. AI chips need huge amounts of it, and the three companies that make most of it can't build it fast enough.
Micron's latest quarter (reported Sept 30) showed what that's worth: $54.2B of revenue, up 379% from a year ago, at an 87% gross margin (the share of each sale left over after production costs).
But Samsung hasn't kept up. Micron is up ~237% this year, while Samsung is up ~111%. 👇
Melvin thinks that lag = opportunity, and it starts with HBM.
HBM (high-bandwidth memory) is the stacked memory that sits right next to an AI chip and feeds it data. For two years, Samsung trailed SK Hynix in making it, and Melvin reckons plenty of investors still see it that way.
That's changing fast:
- Samsung is asking customers for mid-to-high $4 per gigabit for its newest version (HBM4), according to Korean newspaper Maeil Business. The current version sells for ~$1.50.
- UBS and Daishin Securities both see Samsung potentially taking the #1 spot in HBM market share next year.
- Goldman expects Samsung's HBM revenue to jump from ~$20B this year to ~$74B next year.
Then there's everything Micron doesn't do...
Samsung also runs a foundry (it manufactures chips other companies design, like TSMC does), though that business has been losing money. Goldman models the loss shrinking from ~$4.5B this year to ~$740M in 2027, with a shot at turning a profit in the back half of 2027.
On top of that, it can make the memory, the logic chip and the packaging that joins them all together under one roof. Micron and SK Hynix only make the memory.
And Samsung still trades at roughly 4x next year's expected earnings, versus roughly 7x for Micron.
Of course, plenty can still go wrong...
That $4+ HBM4 price is an opening ask, and customers will haggle before anything gets signed. Samsung's foundry also still trails TSMC.
And expectations across the whole sector are sky-high. As our analyst M0xt pointed out, Wall Street expects memory makers to earn $1.2T of operating profit on $1.5T of revenue in 2027 - that's 80 cents of profit on every dollar of sales, which leaves little room for disappointment.
Melvin is still bullish on Micron too. He calls it one of his highest-conviction memory names, but thinks Samsung has more things that can go right from here.
The first test of his theory will be tomorrow (Oct 8), when Samsung releases its preliminary Q3 results.
Analysts expect ~$80B of operating profit (profit from the core business, before interest and taxes), up from ~$66B in Q2 - which would be the biggest quarter in the company's history.
This early release only includes revenue and operating profit, so the HBM and foundry details come with full results later this month.
(Patience is a virtue.)
Btw - Melvin has been building his Samsung position since August and added more this week, after Micron already more than doubled for him.
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