Latest / In the Loop AI / The Memory Trade: Samsung's Record Breaking Profit

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The Memory Trade: Samsung's Record Breaking Profit · In the Loop AI

0:00
Josh: Samsung just became the most profitable company in the world,
0:03
Josh: but nobody actually understands what they make.
0:05
Josh: I feel like when I think about Samsung, I think smartphones or computers,
0:09
Josh: but the reality is is that almost 96% of their company's profits come from a
0:13
Josh: single entity and that's memory.
0:15
Josh: And when we think about memory, we've talked about this in the past,
0:17
Josh: there are three main providers.
0:19
Josh: Two of those three just so happen to exist in Korea.
0:22
Josh: So what are two of the most profitable companies doing in the same country and
0:26
Josh: what are they doing to unlock all this value? And then what are the implications
0:29
Josh: of this across the entire market. That's what we're going to get into today
0:32
Josh: on this episode. EJS, what's going on with Samsung?
0:34
Josh: How is this even possible? I feel like Samsung was the company that people buy
0:38
Josh: Android phones from, not the most valuable company, profitable company,
0:41
Josh: I should say, in the world.
0:42
Ejaaz: Yeah, no, I remember as a kid, a bunch of my friends had Samsung phones,
0:47
Ejaaz: and that's all I knew them for. So when I heard the name come up repeatedly
0:50
Ejaaz: over the last year and a half or two years, I was kind of like,
0:53
Ejaaz: okay, what is this company doing different now?
0:56
Ejaaz: Firstly, some of the headline numbers. um samsung recorded their quarterly profit q2
1:02
Ejaaz: at 58.5 billion dollars now this was surprising to many analysts because they were expecting it to be
1:09
Ejaaz: 55 so you know they overachieved by around three billion dollars but the larger
1:14
Ejaaz: headline reasoning behind this is they absolutely crushed nvidia who only came
1:19
Ejaaz: in at a measly 53 billion dollars now
1:22
Josh: Obviously my god.
1:24
Ejaaz: It's a crazy chart so so
1:26
Ejaaz: Obviously, I'm jesting, but the point I'm trying to make here is,
1:30
Ejaaz: why has Samsung been able to achieve so much profit?
1:32
Ejaaz: You mentioned earlier that 94% of their profit over the last year and a half
1:38
Ejaaz: has come from one single department in their company, and that is AI memory.
1:44
Ejaaz: Samsung is currently the number
1:46
Ejaaz: two largest provider of something known as HBM, high bandwidth memory.
1:51
Ejaaz: In order to understand why this is such a useful commodity, every single GPU
1:56
Ejaaz: that NVIDIA sells, every single TPU that Google makes, any type of AI chip or
2:01
Ejaaz: AI hardware, quite frankly, requires a ton of memory.
2:06
Ejaaz: And emphasis on the word ton, because typically, consumer devices,
2:10
Ejaaz: your laptop, your computers require just kind of like a standard,
2:13
Ejaaz: pretty predictable amount of memory.
2:15
Ejaaz: But AI memory in particular has been quite exponential. Sure.
2:18
Ejaaz: So Samsung is one of three major providers.
2:21
Ejaaz: And because they own a relative monopoly on this industry, they've been able
2:25
Ejaaz: to hike prices up massively. Now,
2:28
Ejaaz: I know I'm throwing out big numbers here, but to help you understand why this
2:31
Ejaaz: is such a gargantuan amount of money to make over three months,
2:34
Ejaaz: we're roughly talking about $650 million per day or $27 million per hour.
2:41
Ejaaz: So this is more money than the most valuable company in the world makes,
2:46
Ejaaz: yet Samsung isn't the most valuable company in the world.
2:49
Ejaaz: And in Korea, right next to it in the number two position is SK Hynix,
2:54
Ejaaz: which is relatively their sister company, or not their sister company,
2:57
Ejaaz: but their sister company in terms of memory, who is the number one AI memory provider.
3:02
Ejaaz: So there's some really unique moats being formed in Korea.
3:05
Ejaaz: And it's weird because typically in the West, you largely have the monopolies
3:10
Ejaaz: intact. And now we're seeing it in Asia, specifically Korea.
3:13
Josh: Another fun fact is if you actually scroll up to the top of this artifact,
3:16
Josh: we distilled it down to seconds.
3:18
Josh: That's $7,500 per second that this company makes, which is remarkable because
3:22
Josh: going back down to that other chart, I mean, we see the little bar on the bottom
3:26
Josh: here that shows Samsung Q2 2025 at $3.4 billion.
3:30
Josh: For those of you who are a little confused about years, 2025 was last year.
3:34
Josh: That was a year ago, they were making $3.4 billion, and now they've surpassed
3:38
Josh: NVIDIA at $58.5. So what on earth is going on? What is going on with this memory?
3:43
Josh: And I think the essence is, like you mentioned, EJ, every computer needs two
3:46
Josh: things. It needs the workbench, which is the memory, and then it needs the filing
3:50
Josh: cabinet, which is the And there's only three companies that make virtually all of this.
3:55
Josh: Each company kind of has their specialty,
3:57
Josh: There's DRAM first, which we commonly reference as the workbench.
4:00
Josh: It's the RAM inside of your gaming PC. So if you've ever built a gaming PC or
4:04
Josh: if you've ever been on Newegg shopping around, you'll recognize this term called DDR5.
4:09
Josh: That's the fast memory. That's the temporary RAM, a lot of people call it.
4:13
Josh: And it gets wiped when you turn off your computer. Then there's NAND,
4:15
Josh: which is more closer to like the filing cabinet. It's your SSD.
4:18
Josh: So if you have an iPhone, chances are you have NAND flash inside of your iPhone.
4:22
Josh: That is a little bit slower, but much cheaper per gigabyte.
4:25
Josh: And then there's HBM, high bandwidth memory, which is the AI stuff.
4:28
Josh: And that's the reason for everything taking place right now.
4:31
Josh: And those DRAM chips, we've described this before, they're basically stacked
4:34
Josh: up and they're 12 to 16 stories high, kind of like a skyscraper of memory.
4:38
Josh: And it uses this incredibly complicated thing.
4:40
Josh: Now, SK Hynix, one of these two companies we've mentioned, they own about 60%
4:45
Josh: of the entire HBM market.
4:46
Josh: So any AI chip that gets built, chances are it's gone through them.
4:50
Josh: And that's why so much of this monopoly has started to form.
4:53
Josh: And that's why so much of these profit margins has begun to expand is because
4:56
Josh: there are three companies in charge of this bottleneck that controls the entirety
5:01
Josh: of the AI market. And you could see here kind of a visual of what this looks
5:04
Josh: like. DRAM next to NAND, next to HBM.
5:07
Josh: And Samsung and SK INIX in particular just so happen to both be the Korean superstars
5:11
Josh: that are making this this reality possible right now.
5:14
Ejaaz: If there's a single sentence that I think would describe why...
5:19
Ejaaz: I guess people are so bullish on these companies. AI is basically a black hole
5:24
Ejaaz: for memory in general, more so than any other consumer or enterprise tech wave that we've seen before.
5:30
Ejaaz: So to give you an idea, when you write a prompt and you submit that,
5:35
Ejaaz: every single AI model, ChatGPT, Claude, doesn't matter, references or rereads
5:40
Ejaaz: the entire model weights.
5:42
Ejaaz: Now, the model weights are what these companies are spending billions and billions
5:46
Ejaaz: of dollars to build, to build a better intelligent model.
5:49
Ejaaz: It rereads it every single time. So you need a lot of memory.
5:52
Ejaaz: And every model, by the way, kind of 10 to 20 X is the requirement of memory
5:56
Ejaaz: needed to build that model. Now, at the scale that they're building these models,
6:00
Ejaaz: 15 trillion parameter models, 20 trillion parameter models, whatever that might
6:03
Ejaaz: be, that is going to keep going up. So there's a black hole for memory there.
6:06
Ejaaz: The craziest part is that's not even the largest part.
6:09
Ejaaz: When you talk to your chatbot, when it remembers things about you,
6:12
Ejaaz: when you ask it to remind yourself of the thing that you spoke about in a different
6:16
Ejaaz: conversation, that's all temporary storage, which is on the NAND flash side of things.
6:22
Ejaaz: And that is equally important. So the overall effect of this is more memory
6:27
Ejaaz: required from all three of these companies that were, well, these two companies,
6:30
Ejaaz: mainly Samsung and SK Hynix, but also from the likes of Micron in the US.
6:35
Ejaaz: And that's why it is pretty crazy to say that memory is no longer a commodity.
6:40
Ejaaz: And I think this is an important point because typically, or critics will point
6:44
Ejaaz: out, an AI memory bubble is a bubble and it will eventually pop.
6:47
Ejaaz: And the reason why they're saying that is justified on historical facts,
6:50
Ejaaz: which is AI memory has gone in boom and bust cycles constantly over the last couple of decades.
6:56
Ejaaz: In fact, three years ago, SK Hynix was doing so badly that they almost got bought
7:01
Ejaaz: by, Josh, can you guess the company?
7:03
Josh: No, don't tell me, Sam, Sam.
7:07
Josh: Micron. Oh, my God. Imagine Micron owned SK Hynix.
7:11
Ejaaz: They came this close because it was the pico bottom of the memory cycle.
7:19
Ejaaz: They couldn't sell memory. They had overinvested in this thing called high bandwidth
7:24
Ejaaz: memory, and they never knew if they were going to sell enough units.
7:27
Ejaaz: And Micron almost purchased them. But they doubled down, and they didn't sell.
7:31
Ejaaz: And now they, as of this week, were the number one most valuable company in
7:36
Ejaaz: Korea. But Samsung eclipsed them with their recent profit earnings. It's pretty insane.
7:39
Josh: That's unbelievable. And there's this really crazy thing. If you go down back
7:42
Josh: to the visualization right underneath that, we have the wafer math of how this
7:46
Josh: actually works because HBM is the AI memory. You need HBM.
7:50
Josh: And it's really demanding and it actually destroys a lot of other consumption
7:54
Josh: ability because according to this, one gigabyte of HBM consumes the factory
7:59
Josh: capacity of roughly four gigabytes of regular DRAM.
8:02
Josh: So every wafer that becomes AI memory is a wafer that never becomes laptop or phone memory.
8:07
Josh: And that's why we're starting to see prices from a lot of these consumer-grade
8:11
Josh: products going up. Like for the first time ever, Apple just increased their
8:14
Josh: products across the board on the laptops, probably on the iPhone this year.
8:17
Josh: Why does that happen? It's because HBM is consuming four times the amount of
8:22
Josh: memory consumption per gigabyte than traditional memory otherwise would.
8:26
Josh: And as a result, this creates pretty hefty margins.
8:30
Josh: And we have this pretty cool chart to reflect just how good these margins are,
8:34
Josh: because again, when you have a monopoly, you set the pricing,
8:37
Josh: you determine how much money you actually stand to make.
8:39
Josh: And we have it compared relative to other industries. So in a grocery store,
8:43
Josh: for every $100 of chips sold, they...
8:47
Josh: Collect about three of that as profit. Very slim margin on the grocery stores.
8:50
Josh: CarMaker is a little bit better at $7.
8:52
Josh: Apple, which is the traditional tech margin when you sell hardware, is about 30%.
8:58
Josh: Samsung is 52 and SK Hynix is 72, meaning $72 of every $100 sold goes to their top line.
9:07
Josh: It goes right to the balance sheet they're able to use and spend that on R&D
9:10
Josh: and profit. So they have this tremendous amounts of profit margins that they're able to play with.
9:15
Josh: And I think that's what's making them clearly so profitable.
9:18
Josh: And Samsung's memory workers are getting bonuses now worth six times their annual
9:22
Josh: salary, which is really incredible to see. EJ, as we were talking about this before the show, how...
9:27
Josh: Generally speaking, Koreans like to gamble a little bit more than the average person.
9:31
Josh: And if you are a Korean who is interested in gambling and also interested in
9:36
Josh: just making a tremendous amount of money, if you either bet on SK Hynix or you
9:39
Josh: start working at SK Hynix, you either got a six times multiple on your investment
9:43
Josh: or a six times multiple on your salary as a bonus.
9:46
Josh: And this just seems like this unbelievable gift to the country of Korea. Oh my gosh.
9:51
Ejaaz: Here's a fun fact. The luxury sales market has tripled over the last four months
9:57
Ejaaz: in Korea specifically because everyone's getting rich off of SK Hynix.
10:01
Ejaaz: I saw a story about folks over in Taiwan who are borrowing up to $60,000 from
10:08
Ejaaz: their bank at crazy interest rates just to buy TSMC.
10:11
Ejaaz: The point is, there are crazy things happening in the AI markets in Asia specifically,
10:17
Ejaaz: and Korea is no different.
10:19
Ejaaz: It's interesting you raise the point around margins. I was looking at the price
10:25
Ejaaz: increase or the cost of memory that SK Hynix and Samsung have been selling over the last six months.
10:32
Ejaaz: Now, in Q1, they hiked their prices up 90%.
10:36
Ejaaz: Just imagine that for a second. Just consider that. Imagine buying something
10:41
Ejaaz: that you use regularly in your phone, in your computer, and suddenly the price
10:45
Ejaaz: of it doubles purely because one component of your device has gone up almost 100%.
10:51
Ejaaz: But it gets worse. In Q2, it went up a further 50% to 60%. That's why Samsung
10:56
Ejaaz: just reported the best earnings ever, 19x better than last year.
11:00
Ejaaz: And more money, by the way, than they've made in the last 40 years.
11:04
Ejaaz: They've made in one single year. So the point I'm trying to make is...
11:09
Ejaaz: These prices have been hiked up pretty aggressively.
11:12
Ejaaz: And so your question might be, well, it's not going to go up any higher.
11:15
Ejaaz: Well, Samsung announced or are going to announce in their quarterly earnings
11:19
Ejaaz: that they're going to hike it up another 20% in Q3. So the point is simple.
11:25
Ejaaz: Memory is extremely scarce.
11:27
Ejaaz: There are three companies in the world that can produce this memory that is required for AI.
11:33
Ejaaz: Two-thirds of them reside in Korea. And Samsung and SK Inux hold a monopoly
11:39
Ejaaz: for something called high bandwidth memory specifically, and they can price it however way you want.
11:43
Ejaaz: Now, you may look at me and listen to this and say, well, why can't we just
11:48
Ejaaz: create more memory? Why can't there be other companies that do this?
11:52
Ejaaz: It is a very closely customized process.
11:56
Ejaaz: These companies, SK Hynix, the CEO of SK Hynix, hangs out with Jensen almost
12:00
Ejaaz: every other month or every other two weeks, actually, to try and figure out
12:05
Ejaaz: how best to create memory for the chips that they're building.
12:08
Ejaaz: All these other hyperscalers are doing the exact same thing.
12:11
Ejaaz: They're begging. Remember, there was a story we spoke about a few months ago,
12:14
Ejaaz: Josh, where Google and Microsoft had flown their execs over to Korea to convince
12:19
Ejaaz: them to sell them more capacity.
12:21
Ejaaz: They even offered to pay a couple hundred millions of dollars to pay for their
12:25
Ejaaz: equipment that is required to expand their fabs.
12:27
Ejaaz: It is absolutely insane what's going on. And you're right as a skeptic,
12:31
Ejaaz: if you're listening to this and you are a skeptic, to think, you know what?
12:35
Ejaaz: This is a bubble, it's going to pop soon. But also, if you look at the fundamentals,
12:39
Ejaaz: like companies such as Micron and SK Hynix, the PE ratios are still astoundingly
12:44
Ejaaz: low because they don't have enough supply. Atoms can't get moved.
12:48
Josh: So hearing this price increase, it kind of makes me happy for you,
12:53
Josh: happy for the investors, glad everyone's making money.
12:55
Josh: But I think about the impact that it has on my life and the actual consumer
12:59
Josh: because this is starting to trickle down into the real market and it is affecting
13:03
Josh: me in a way that is pretty annoying.
13:04
Josh: When we look at the price comparisons of what things cost today as a consumer
13:09
Josh: because of this demand crunch, the numbers are pretty brutal.
13:13
Josh: Just to get a 32 gigabyte kit of RAM, which is traditionally not that expensive
13:18
Josh: in a small component in a computer, it's two to three times more expensive this
13:21
Josh: year than it was last year.
13:22
Josh: And now if you want to build a PC, over a third of the cost of that computer is just the memory.
13:28
Josh: And the same thing is true with a lot of Apple products, like we mentioned.
13:30
Josh: The MacBook Air now has increased $200. It went from $1,100 to $1,300.
13:35
Josh: The MacBook Pro, even more.
13:37
Josh: If you bought a MacBook Pro just a couple weeks ago, it was $1,700.
13:40
Josh: And that same MacBook Pro today is now $2,000. client.
13:43
Josh: Same with MacStudio, which has increased $1,300 because why do people buy MacStudios?
13:49
Josh: Well, they buy them to run local inference on their machines.
13:52
Josh: They have a tremendous amount of memory.
13:53
Josh: That memory is costing a lot more. Now it went from $4,000 to $5,300.
13:57
Josh: And the same with their low-cost MacBook Neo, increasing $100.
14:00
Josh: So the price of everything is continuing to.
14:04
Josh: There's probably some pretty strong forces that be to convince you to maybe
14:09
Josh: keep your phone for another quarter or two or another year or two or another
14:12
Josh: cycle because these prices are just going up, up, up.
14:15
Josh: Now, the question I have for you, E-Jazz, is, is this going to continue and
14:19
Josh: how long will this continue? Can they afford to just continue to move these
14:23
Josh: prices up and up and up and just expect everyone else to absorb that price?
14:27
Josh: Or is there a moment where they're going to have to start cutting those margins
14:30
Josh: a little bit because the market's just fully tapped out? They cannot afford
14:32
Josh: to continue to spend this high on memory.
14:34
Ejaaz: There are many different ways to analyze this. There are frameworks.
14:38
Ejaaz: There are Wall Street traders that are like spending hours and hours trying
14:41
Ejaaz: to research this and figure out, hmm, will this memory demand keep going up?
14:45
Ejaaz: There's only one proxy that measures that.
14:47
Ejaaz: Are more people using AI?
14:50
Ejaaz: What does that curve look like? If you believe, as you're listening to this,
14:54
Ejaaz: that more people will be using AI, spinning up multiple AI agents per person
14:59
Ejaaz: and increasingly use it across work, leisure, and whatever they do in their day-to-day life,
15:04
Ejaaz: then you are betting that memory demand increases exponentially.
15:09
Ejaaz: But then you might be wondering, well, what if they produce enough supply to
15:14
Ejaaz: meet that demand over the next year?
15:16
Ejaaz: Well, number one, you're not going to get that supply coming on board until
15:20
Ejaaz: 2030. These chip fabs take so long to build.
15:24
Ejaaz: They are meticulously designed, and they are hard to flood the supply right now.
15:29
Ejaaz: Now, typically in a boom and bust cycle, you could overflood the supply because
15:32
Ejaaz: you can only make so many mobile phones.
15:35
Ejaaz: Apple and Samsung, ironically, were the ones making these mobile phones.
15:39
Ejaaz: So you can kind of predict the consumer hardware, you can't do that in the GPU
15:43
Ejaaz: game because so many people want that.
15:45
Ejaaz: So it depends on if that demand outpaces the supply of memory.
15:49
Ejaaz: And right now it's looking like it's three to five X over the next couple of
15:52
Ejaaz: years over the actual supply. So technically we're gonna be constrained.
15:56
Ejaaz: The other perspective I have on this is we will look for alternatives in terms
16:02
Ejaaz: of memory suppliers in China. And Apple's been doing this. They're shopping
16:05
Ejaaz: around this company called CXMT in China.
16:09
Ejaaz: That produces similar DRAM and HBM. But here's the sticker.
16:14
Ejaaz: They're oversold to the Chinese AI labs, and they also don't have any supply.
16:18
Ejaaz: So Apple is trying to strong arm them and the US government to allow them to
16:22
Ejaaz: buy from a competitor in China.
16:25
Ejaaz: And the final point is, what if we create a new model architecture that doesn't
16:30
Ejaaz: require as much memory? Now, the skeptic will jump at that, and they'll say,
16:33
Ejaaz: hey, memory demand is going to crash. Prices are going to crash.
16:37
Ejaaz: Like this is the bubble popping. I would argue the opposite.
16:40
Ejaaz: If memory becomes cheaper, guess what?
16:43
Ejaaz: More use cases get unlocked, more AI agents get run, and the world economically
16:47
Ejaaz: becomes way more productive. So does that sound bullish to you?
16:51
Ejaaz: Yeah, I guess so. I'm a permable on the memory zone.
16:54
Josh: Yeah, we've been so bullish. And for a good reason, like Micron's up,
16:57
Josh: what, two and a half times a year today.
16:59
Ejaaz: Dude, we made the call at the end of last year. It's up 150%.
17:02
Josh: We've been on it. I will say the Illuminous portfolio has been doing absolutely
17:05
Josh: incredible over the last 12 months. Like everything that we have predicted to
17:09
Josh: varying degrees has done pretty well.
17:10
Josh: But now I have to ask the question. And it's like, okay, SanDisk up six and
17:13
Josh: a half times, Micron up two and a half times, SK Hynix two and a half times,
17:17
Josh: Samsung 1.5 multiple year to day.
17:19
Josh: All these companies have done incredibly well, but just recently,
17:22
Josh: all of those companies are down more than 20% from their recent highs in the stock market.
17:27
Josh: Which, if we're speaking technically, that is a bear market.
17:30
Josh: So we're technically in a memory bear market right now, which doesn't feel like
17:34
Josh: it based on what we're talking about.
17:37
Josh: And the weird paradox here is that like Samsung just announced their earnings
17:41
Josh: earlier this week and in fact they beat estimates which was unbelievable they
17:45
Josh: had this record earnings report that's how we found out that they're more profitable
17:48
Josh: than nvidia and yet the stock sold off.
17:51
Josh: Nine percent in a single session and sk hynix fell off 15 in a single session
17:56
Josh: so these stocks got crushed and there's this interesting thing at play where
18:00
Josh: like okay these memory companies are saying that they have record earnings they're
18:04
Josh: going to continue to increase prices they have
18:06
Josh: increased amount of sales coming down the pipeline they're going to fulfill
18:09
Josh: all this demand and yet the market is saying, whoa, we got to slow down.
18:12
Josh: We are taking this down 20%. Now, there are some things that may have smoothed the market here.
18:17
Josh: Meta has hinted at capping their AI capex, not that they've built anything fun
18:21
Josh: with it anyway, but they've kind of hinted that they want to lower the capex.
18:25
Josh: And I guess that's where we're sitting now is that this weird point of uncertainty
18:29
Josh: where the company is just saying, hey, guys, we're all good on this end.
18:31
Josh: We have incredible margins. We have an incredible business. There's tremendous amount of demand.
18:35
Josh: But the stock market's saying, whoa, hold on there. We've gotten up a lot.
18:38
Josh: We might have to check you. There's some unknown unknowns that are coming down
18:42
Josh: the pipe that they're not entirely sure about.
18:44
Ejaaz: Can I give you my honest and boring take as to why the markets are crashing?
18:49
Josh: Tell me, why are we down 20% right now?
18:52
Ejaaz: We just came to the end of pretty much quarterly earnings.
18:57
Ejaaz: And this is just a sell the news event. I think there are a lot of funds around
19:01
Ejaaz: the world that are levered up on these stocks, and they kind of want to get in at a better price.
19:06
Ejaaz: Now, if you're listening to this
19:07
Ejaaz: and you're thinking, Ejaz, you sound delusional, fair play. Maybe I am.
19:12
Ejaaz: But I think that if you're any kind of a long-term investor in AI,
19:17
Ejaaz: it is so strikingly obvious that we're going to need memory.
19:21
Ejaaz: And if you've done any kind of in-depth research around how to produce that
19:24
Ejaaz: memory, you're going to need these three companies, right?
19:28
Ejaaz: That's the way that it sits right now. And I think people are getting concerned.
19:31
Ejaaz: People are getting worried. They're wondering how on earth can we make this
19:34
Ejaaz: much money over the same stocks month after month after month?
19:38
Ejaaz: How can the profit margins can't keep going up, but they kind of can keep going
19:42
Ejaaz: up as long as memory supply is underpriced or underpaced for AI demand.
19:48
Ejaaz: And that's currently what we're saying before. And we've never seen this before.
19:51
Ejaaz: That's the whole point. Like these companies are more in demand than they have ever been.
19:57
Ejaaz: Now, a fun fact is like with every cycle, there is a boom and a bust and eventually
20:02
Ejaaz: there will be a bust, I believe.
20:05
Ejaaz: But that's only at a point where these fabs start oversupplying the entire market.
20:09
Ejaaz: And at the last pico bottom, when memory was super cheap, do you guys want to
20:15
Ejaaz: guess which company or companies were aggressively pushing their prices even
20:20
Ejaaz: lower to buy as much memory as they can?
20:23
Ejaaz: Oh, who's that? When the shoe was on the other foot. It was Apple.
20:25
Ejaaz: It was Apple. Apple had the monopoly on SK Hynix and Samsung and forced them
20:30
Ejaaz: to sell DRAM and HBM for the cheapest prices possible.
20:35
Ejaaz: So the point I'm trying to make is this might seem super aggressive.
20:38
Ejaaz: Samsung, SK Hynix, hiking up prices.
20:41
Ejaaz: They're just doing what other companies did in a capital efficient market.
20:43
Ejaaz: And that's what we're seeing right now. I think this will be a nothing burger
20:46
Ejaaz: in a couple of months time. That's my bet.
20:48
Josh: Yeah. And you have to imagine like there probably is some scar tissue.
20:51
Josh: Like you mentioned, we have never seen this before in terms of demand,
20:53
Josh: but we have seen this before in terms of price, where these
20:56
Josh: kind of memory super cycles do happen, the last one being in 2017 to 2018,
21:01
Josh: where Micron peaked at about four to five times price to earnings ratio,
21:04
Josh: and then proceeded to fall 60% while their earnings were still rising,
21:08
Josh: similar to what we have now.
21:09
Josh: So I think people are just a little concerned, a little scared.
21:12
Josh: This is probably a short-term outlook, longer term, like you mentioned,
21:15
Josh: things are looking pretty solid.
21:17
Josh: In fact, coming up, we have a test of this, and a pretty big one,
21:20
Josh: because SK Hynix, as we mentioned earlier, is a Korean company, but not for long.
21:26
Josh: On July 10th, they're being listed on the NASDAQ under the ticker SKNY,
21:32
Josh: raising about $30 billion.
21:34
Josh: So this feels like a really pivotal moment in the memory world of how the American
21:39
Josh: market is going to perceive SK Hynix bringing their listing onshore.
21:43
Josh: And we're gonna see kind of how the market reacts. And this is an interesting
21:47
Josh: one. Ejaz, I'm curious for your take. Like, is this something you're planning
21:50
Josh: to participate in and invest in? Like, we have a sneaky IPO here.
21:55
Ejaaz: Yeah. In short, yes. I'm bullish on memory. I own Micron.
21:59
Ejaaz: I own DRAM, which is kind of like a basket that owns each of these top memory
22:04
Ejaaz: companies individually. Like, if you're a US citizen, you can't necessarily
22:08
Ejaaz: get access to SK Hynix or Korean stocks in general.
22:11
Ejaaz: But you can do it through these kind of like basket things. DRAM is one.
22:15
Ejaaz: But yeah, I'll be buying SK Hynix when they do IPO here in the US.
22:18
Ejaaz: As I've been waiting for it. Fun fact.
22:21
Ejaaz: Guess where I think $2 to $3 billion of this $28 billion ADR is coming from?
22:27
Josh: Leopold Ashenbrenner. That guy's back at it again.
22:31
Josh: This dude does not miss. Our last episode which we recorded on him,
22:34
Josh: which you should go look at. It has like 120,000 views now on YouTube.
22:38
Josh: It talks about how his portfolio made no sense. He's like, why are you shorting
22:42
Josh: NVIDIA as your largest position? Well, it turns out NVIDIA is down 20% since
22:46
Josh: recording that. Who would have thought?
22:47
Josh: And now he is participating in SK Hynix as the IPO, as one of the largest seed
22:51
Josh: investors in this entire thing. So, like, the dude is on it.
22:56
Josh: I mean, as much as people push back against his decisions, he has really not missed.
23:01
Josh: He's killed it. Yeah, he's done such an amazing job.
23:05
Ejaaz: Yeah, he has one of the, his ears are closest to the ground in terms of what
23:10
Ejaaz: is actually going on in the Frontier AI Labs.
23:14
Ejaaz: And it's so funny because you know some might say there's some questionable
23:19
Ejaaz: practices going on but I remember
23:22
Ejaaz: I think a few a month ago he announced major investments through his fund in
23:26
Ejaaz: some of these Australian neoclouds and then they signed a major partnership
23:30
Ejaaz: with some of the Frontier LAP so if you are blindly kind of like following this
23:33
Ejaaz: guy I would urge you to be careful but it's promising
23:37
Ejaaz: a question you asked earlier is we're gonna see this as a real test in the market
23:42
Ejaaz: in in the West at least as to whether the memory trade is over or whether it is in demand.
23:47
Ejaaz: This round, this SK Hynix IPO, which is launching in a day's time,
23:52
Ejaaz: if you're listening to this right now, is currently rumored to be 4x oversubscribed.
23:59
Ejaaz: There is insatiable amount of demand for memory stocks in general,
24:03
Ejaaz: and that comes from capital institutions, but it also comes from retail as well.
24:06
Ejaaz: But you can't get that amount of money without having institutionals that have
24:10
Ejaaz: thought long and hard about this, pension funds, etc., that are buying this
24:13
Ejaaz: and holding for a while in play.
24:15
Ejaaz: So that's what we're seeing right now, and I think that this is going to be
24:18
Ejaaz: a pretty huge success. I think these stock declines over the last couple of
24:22
Ejaaz: days is a nothing burger. I think it's just a new quarterly earnings and hedge
24:26
Ejaaz: funds are doing their thing, they're trading their outgoes.
24:29
Josh: Yeah, that's probably right. And if we go back to the artifact,
24:32
Josh: there's a super cycle or sell signal, which I think is probably a decent place
24:35
Josh: to wrap up this episode in deciding like, hey, where is everything going here?
24:40
Josh: And I think the reality that we've kind of converged on, I would say between
24:43
Josh: the two of us, let me know if I'm wrong, is that longer term.
24:47
Josh: Things are looking great. There is no limit to the amount of memory demand that's happening.
24:52
Josh: There are a very small subset of companies that are capable of building this
24:55
Josh: type of memory, and there is not a very clear path for new entrants to actually
25:00
Josh: come and make a meaningful impact on their business.
25:02
Josh: So as long as this demand continues to rise, which we assume it will due to
25:06
Josh: just the sheer demand volume of AI and tokens, that is looking good.
25:11
Josh: On the short term, people are a little bit afraid. They're a little unsure and
25:16
Josh: uncertain because there's been such a large run-up and because there's probably
25:19
Josh: some scar tissue from these previous boom and bust cycles when it comes to the memory companies.
25:24
Josh: So there is a lot of uncertainty, but this makes sense to me.
25:27
Josh: And we've seen this over and over again in the market where there are a lot
25:30
Josh: of knee-jerk reactions that are incorrect and over-determined.
25:33
Josh: And the reality is that if you have a slightly longer time frame,
25:36
Josh: a slightly longer time scale, then you can be right eventually.
25:42
Josh: And perhaps you're not right in the next month or two if you bought it a month
25:45
Josh: ago you're looking pretty dumb right now you're probably feeling like oh man
25:48
Josh: i bought the wrong company but i think the reality is is that six months 12
25:52
Josh: months 18 months 24 months in the future
25:54
Josh: um these things are still going to continue to be pretty strong businesses and
25:58
Josh: i think that's probably the reality we could leave it at.
26:00
Ejaaz: I agree. I'm curious what the folks listening to this think.
26:04
Ejaaz: I know AI memory isn't the sexist of topics to talk about, but it has increasingly
26:09
Ejaaz: become the most important component to this AI infrastructure capex spend race.
26:15
Ejaaz: It is the most costliest and priciest item that is driving up all the prices of your consumer goods.
26:21
Ejaaz: What are your thoughts? Do you think we are overly optimistic?
26:24
Ejaaz: Do you think that memory profit margins are going to keep going up?
26:28
Ejaaz: Do you think memory stock prices are going to keep going up?
26:30
Ejaaz: Or do you think this is an insatiable bubble that is eventually going to burst
26:34
Ejaaz: and we are all currently delusional and Josh and Ijaz are marking the top?
26:38
Ejaaz: Curious to hear from you guys on what you think.
26:40
Ejaaz: Thank you so much for listening to this episode. We are trying to cover different
26:45
Ejaaz: types of companies that just aren't based in the West and also kind of explain
26:49
Ejaaz: how and why they're important and how you guys can maybe potentially get exposure
26:53
Ejaaz: if you were interested in doing so.
26:55
Ejaaz: We're always excited about talking about these topics, but if there's anything
26:58
Ejaaz: that we've missed recently and you want to hear more about, let us know.
27:01
Ejaaz: We've noticed that a lot of Capital Markets episodes that we've been making
27:05
Ejaaz: have been super interesting and engaging by you guys. We love the comments.
27:08
Ejaaz: Wherever you're listening to us, Spotify, YouTube, Apple, let us know what your
27:14
Ejaaz: thoughts are. Give us a rating. Give us a thumbs up and tell your friends about it as well.
27:18
Ejaaz: And I think the final thing to say is Limitless is in the market for partners
27:24
Ejaaz: that we want to team up with.
27:26
Ejaaz: And we want to talk about your product and your feature. If there's something
27:29
Ejaaz: that might be interesting that you think Josh and Nijaz might like,
27:32
Ejaaz: or if you know of someone that has something that they might want to publicize, let us know.
27:37
Ejaaz: We are in the market. We have hundreds and hundreds and hundreds of thousands
27:40
Ejaaz: of people every single month that listen to us.
27:42
Ejaaz: And we would love to promote and talk about your product. But aside from that, I think that's it.
27:46
Josh: Yeah, it's almost like you've had 200 episodes of practice on that sign-off.
27:49
Josh: That was pretty good. No notes, no additions. Thank you all for watching as always.
27:53
Josh: Very much appreciated. Share with a friend if you think they would enjoy.
27:56
Josh: And as always, we will see you guys in the next episode. Next one is the roundup.
28:00
Josh: We got a big week coming for the roundup. My God, we have a couple of new models
28:03
Josh: coming down the pipe. We got it. Yeah.
28:05
Josh: Just a couple. Yeah, just a good one. It's a good one. You're going to want
28:08
Josh: to tune in. That's dropping on Friday. We got a newsletter coming out as well.
28:11
Josh: And we'll see you guys on that episode. Thank you so much for watching.
28:13
Ejaaz: See you guys. Peace.