The market volatility in the major tech names has clearly increased during the last month. The industry fundamentals have however not changed and the strength in the areas around AI continues, while we are still struggling with inventory overhang in some sectors, like networking. The volatility is driven by valuation worries and the strong rally we have seen in the AI names. GP Bullhound Global Technology Fund ended up 8.89% in June.
A focus area of June has been the memory market. Micron (small position owned) Q3 result came in above their own guidance across the board. Both DRAM and NAND prices were up 20% Q/Q. Micron’s HBM memory sales is expected to reach $100 million in 2024 and billions in 2025. The company is the second largest supplier in the market after SK Hynix and expects its market share to increase in 2025. Micron’s HBM memories are sold out for 2024 and 2025, with pricing already contracted for the overwhelming majority of the 2025 supply. The guidance aligned with market expectations, though the whisper consensus was higher, which led to a slight dip in the share price. However, we believe the company's guidance is overly cautious in the short term, given current industry trends. The risk remains that producers may add too much capacity, driving down prices. Nonetheless, we see the results as further evidence of a high-demand environment for the coming years.
The Chinese DRAM manufacturer ChangXin Memory Technologies (CXMT) has received government approval to establish a new manufacturing site in Shanghai, according to industry sources. Again, the largest risk to the recovery of the memory market is that too much capacity is being added in the short run. This is not happening currently, but it is clearly something to watch carefully.
Quote of the month – Sanjay Mehrotra – President and CEO of Micron “Due to expectations for continued leading-edge node tightness, we are seeing increased interest from many customers across market segments to secure 2025 long-term agreements ahead of their typical schedule”.
Looking at the portfolio, we have not made any major changes but although we have been addition to our positions in TSMC and AMD. All in all, we are trying to capture some additional return by buying on weakness and selling on strength in individual names.
In summary, Micron is sold out in 2024 but also in 2025 when it comes to HBM memories for AI solutions. This clearly means that it is going to be tough to gain market share in AI solutions as the industry is supply constrained.