The Memory Trade Is Hitting a Critical Moment

[00:00:00]Hey guys, welcome back. Well, today was a sector test just as the thumbnail said because as I mentioned last night, we were probably going to see profit taking today, but the NASDAQ, the tech sector, they all operated differently from the broader market. We saw the Dow Jones Industrial Average was up about half a percentage point today. The S&P was up, but the NASDAQ was down by half a percentage point. The tech sector was down even more. The memory sector, the five, FAB, the Fab Five were all down significantly. SanDisk was down by 11%.

[00:00:30]Mic round down by 7%. SKH Highix, Western Digital and Seagate all followed suit and they were down today as well.

[00:00:37]So it sets us up with an initial question or just a critical question for us. Was today's selloff the beginning of a major structural breakdown or what or did the panic selling just create a unbelievable buying opportunity and the most critical bottleneck of all of the AI revolution? Today we're going to break down all the top stories from the sector using our market signal framework that we have been using the the red, yellow, green signals overall. We're going to talk about the big tech policy fights. We're going to talk about the Asian liquidations that contagion that came across the Pacific last night.

[00:01:14]Celebrity short positions will be a focus today. We'll also take a look at some of the options volatility that we could see on Monday morning. And finally, I want to end the video talking about next week's main event, the earnings that will be a make or break for this entire sector. Those are the stories we're going to cover in tonight's video. So, if you haven't done it already, make sure you hit like, make sure you subscribe to the channel. If you're watching this channel and you've learned something over the last few weeks or you just enjoyed the content and you haven't subscribed yet, do me a favor, hit subscribe, join the Market Signal community. I want you to be here.

[00:01:49]I want to engage with you. I want you to engage with the entire community. So, make sure you like, make sure you subscribe. All right, guys. Let's get started in the video. Let's talk about what we saw today because to understand why our domestic memory and hardware stocks took a beating today, we have to look at what happened overnight in Asia.

[00:02:07]Let's pull up that story. We can see and I call this the cross Pacific or the uh are they just the contagion that came across the Pacific in the US because we had pressure in the Asian markets last night. If you were tracking it overnight, you probably knew what you were going to see at the opening bell today. You can see on the screen here that the Asian memory and chip stocks fall after Asian peers SKH and Samsung's tumbled. We had significant pressure not only in the Nikk 225 which fell by about two two and 3/4% but but Kio was down by 9%, Tokyo Electron down by 5%, Avantis 6% that also spilled over into the South Korean market. We saw their index. It was down by over five just about five and three/4ers percent as well. It was dragged down by the memory giants. SK Heinix was down by 11%. Samsung 8%. That spilled over right into the US market.

[00:03:03]Just take a look at what we saw with the semiconductor. So this is the technology sector. And the technology sector was down significantly compared to the S&P overall today. We know the semiconductor industry is the biggest weight of the tech sector 33%. It was down by 2.84%.

[00:03:21]If we look dive in further you can see SKHEX down 8%. You know just about 9% Micron down 7%. We saw Broadcom down, Nvidia down slightly, AMD down. This was a a shock across the entire semiconductor sector today. Not just memory but across tech in general.

[00:03:40]Certainly the macro headwinds are impacting this sector as well, but we can't lose sight of what we focus in on this channel, which is the memory memory sector, the Fab Five. Take a look at what we also saw with the other players.

[00:03:52]As I mentioned, SanDisk was down by 11% in the regular trading. Both Seagate Seagate as well as Western Digital down over 6% closing in on 7%. So, it was a tough day, profit- taking kind of day, just a downward pressure day on the memory sector overall. And it didn't stop in the after hours. We're looking right now in the after hours, Micron is down by about another 1%. Just trading right about 910. What we're seeing with SanDisk, it's down by about, you know, three $3.50. Another quarter percent, trading at 1433. Western Digital's down, you can see over here on the right, by about $7 in the after hours, trading at 512. Let me just refresh my screen just to make sure. That is the most up-to-date numbers for all of those. And yeah, it looks like it was unfortunately. But let me scroll back down to Western Digital down by $7. And we see that Seagate is down by another $11, 1.37%. So it didn't let up in the after hours as well. It continued to just funnel on like throughout the the pressure we saw today carried over into the after hours as well. I I think what this is showing us to me and why I have this kind of as a red signal for the day just this this contagion that we see from the Asian markets into the US is just showing us that the Asian mark Asian powerhouses that we covered SKH Heinik Samsung Kio uh they are at the they're at the absolute foundation of the global memory trade the global memory manufacturing severe institutional liquidation in soul immediately triggers systematic derisking across the US desks before our markets even open. So the overnight weakness, it created a direct contagion that carried right into the opening bell here in the US. This global synchronization is precisely why this overnight action why I'm calling it a red signal because when you see massive liquidations in those big tech those foreign companies like I mentioned Samsung SKH and Kio it shows that global institutional capital was taking profits as long as the Asian markets remained under pressure the US market and those US stocks those fab five that we follow or four in this case because I'll pull out SK but those stocks will face an uphill battle against the automated crossborder selling programs that we're currently seeing in the market right now. So that is definitely a red signal.

[00:06:17]But I want to shift over to some of the kind of a foundational green signal. I think a demand that we saw today.

[00:06:24]There's a couple stories. One is here from from uh from Morgan Stanley. It's from Joe Moore. uh he calls out that Morgan Stanley believes that the recent decline in US stocks has created an attractive opportunity for investors.

[00:06:38]Now we have seen some of this Joe Moore is obviously very bullish on this sector. He's mentioning that the current memory cycle as fundamentally different from the prior ones and it's not just data center strength that we you know we're going to see other applications as well. He's kind of in that same mindset, frankly, as I am that this is a different structurally a different cycle than we've seen in the past. And I'm not as concerned as the boom bust cyclicality that we've seen before. But he bases and he the firm believes the cycle is different because memory has become increasingly the bottleneck to AI as we move into the agentic CPU phase, the agentic phase overall. And as we go down further, you can see that they mentioned Morgan Stanley believes that the memory shortage have no sh signs of abading. There'll be a 25% quarterover-arter increase in pricing.

[00:07:27]And they believe that the shortage will it will not concerns over worsening memory shortages in 2027 and 2028 uh are just invalid that the the shortages will be as strong as is there'll be current demand will continue to outstrip supply essentially. And this jumps me over to the story that I saw today from uh AMD.

[00:07:46]It kind of goes together. I want you to just listen to this and just think about we see on one side Morgan Stanley being very bullish around the demand that we see, the shift that we're going to see in the market, all the applications we have for memory and then you see Lisa Sue come out and basically say that AMD AMD says the AI shift to inference and agents will reshape data centers. Now, I as told you last night you should totally watch the advancing AI the keynote presentation from Lisa Sue. If you haven't, I recommend it. There's so many good stories that have come out of it this week. But essentially what they are saying is that the artificial intelligence boom is entering a new phase that will force a major redesign of data centers as demand shifts from model training towards inference AI agents and physical AI.

[00:08:31]As she mentions, there's a couple things in here. AMD argued that the next phase will be shaped less by model training and more by inference as AI is increasingly used in enterprise software search customer service coding and other data workflows. She also, if I jump back up here, she said uh Lisa said that Frontier AI, Aentic AI and physical AI will drive the next wave of growth and that future infrastructure leaders, which she is hoping AMD will be one.

[00:08:59]They're actually being really bold with some of their statements uncharacterist uncharacteristically of AMD, they're going right at Nvidia. It's actually interesting to see. It's setting us up for a really cool battle that we'll see over the next, I think, 12 to 24 months.

[00:09:13]But they go on to say that the infrastructure leaders will be the ones that be able to balance compute, memory, in interconnect, pooling and software across the entire platform. I think there was one other thing right here I wanted to see. She is mentioning that the outlook for the data center CPU market saying that the Aentic AI could expand this market from 26 billion last year in 2025 to 220 billion in 2030. So essentially a 10x in five years. It's a great sign for not only AMD, but it's also a great sign for the memory sector, too. And it's all around right here.

[00:09:47]She's saying beyond the cloud, AMD is also de betting on physical AI where intelligent systems move from factories, logistics, healthcare, autonomous mobility, and other real world environments. And during advancing AI, they they brought out some they introduced their new embedded AI products as well as the robotics platform. So this is what we have been talking about on the channel like we are shifting the market is shifting it's beyond just data centers and that's why in some of the commentary that we see in the channel mentioning that you know the the sector is over data centers are over I think we're just as I mentioned we we're not factoring in where we're moving to next the agentic AI the robotics phase the autonomous vehicle phase the application for memory is exponentially higher here so this will exponentially like I said drive the demand for memory in my opinion And this is a green signal for the memory sector.

[00:10:39]It's a green signal for Micron because we know, remember I talked about their Helios rack last night and the massive amount of HPM that is needed in that as well as all of their new architecture that is coming forward. It is significantly dependent on the memory sector. So let's jump over and talk about a couple yellow signals that we saw today. One is actually kind of a green yellowish signal. It's green for the sector. I talked a little bit about it last night, but there's a little more that have come out. So, South Korean memory giant Samsung and SKH Heinix, we know they're meeting in Silicon Valley with tech leaders actually today, but they're we're starting to see stories come out now that there are going to be massive amount of deals that are announced from this summit or this meeting in Silicon Valley. Remember, I mentioned I wish I wish Micron was involved, but they're not. But we could see some deals coming out of here. And if I scroll down, you're seeing announcements will likely cover strategic partnerships, memorandum of understanding, and long-term supply deals on memory chips. The deals are set to be announced beginning today. So, let's keep our ears and eyes open over the weekend to see what essentially what deals are announced, what long-term uh supply arrangements are announced or what uh memorandums of our understanding are announced. So this is a green signal for the broader memory sector because what essentially it does is it just validates one key fact that hypers scale AI demand is not slowing down. The article also said that the American tech firms are driving 80 to 90% of South Korea's memory orders right now and it proves that high bandwidth memory is still the undisputed king when it comes to the data centers. is the undisputed king of the bottleneck of the AI boom.

[00:12:17]But it's also for me a yellow cautionary sign when I look through the lens of Micron because it shows us that when you see this tandem of SKH and Samsung moving together and they're meeting with top tier US hyperscalers to lock up multi-billion dollar allocation deals, it means that Micron's primary rivals are aggressively kind of moving together and looking to shore up deals and create more partnership here with key US players. So while Micron continues to ramp up their own HBM production in the US, these bilateral Korean agreements, they demonstrate or what we could see these agreements what may be announced this weekend. It demonstrates that big tech is not waiting around for domestic capacity from Micron to catch up. They are securing high bandwidth memory wherever they can right now. That's how critically important this advanced memory product is to the buildout. How critically important it is to the market right now. So that's a yellow signal from Micron kind of green for the for the sector though. The next one I want to jump to was an article I see in Tom's and essentially is an open letter to the US government. So while we're seeing kind of Micron and the memory group navigate a lot of issues right now.

[00:13:31]There is this growing policy that is battle that is brewing in Washington right now. And this is the another yellow signal that I want to drop on your radar because what we're seeing is Nvidia, Microsoft, Meta, and 20 other Czech tech uh excuse me, tech leaders, they issued a rare joint appeal urging the White House not to enact broader restrictions or sanctions on open weight models. Let me show you what they said.

[00:13:56]You can see, as I mentioned, 25 companies overall co-signed the letter.

[00:14:01]The letter is asking Washington to avoid what it calls premature restrictions on downloadable AI models. And it comes just four days after the Trump administration was reported to be reviving a push to ban Chinese models.

[00:14:13]Though the document didn't directly mention China, Moonshot or Deepseek and uh and it also wasn't signed interestingly enough by OpenAI, Anthropic or Google, but it breaks down companies and names across chip makers, server vendors, cloud operators, enterprise uh software firms, security firms, everyone across the entire supply chain. The reason this policy fight matters to hardware investors like us in memory is simple that open because openw weight models are what drives AI adoption down to the private enterprise servers. It drives it down to the local data centers and edge devices as well.

[00:14:49]If Washington responds with heavy-handed regulations or or broad model bans, it threatens to slow down private enterprise hardware buildouts directly impacting global demand for highcapacity server DRAM and enterprise SSDs. I think there's also a second layer why I have it as a yellow signal here because this is a pure geopolitical retaliation risk in my opinion specifically against Micron because what we saw the Treasury Secretary Scott Besson he explicitly warned that sanctions and entry list designations are on the table for foreign for former ent foreign entities and whenever tech tensions between Washington and Beijing escalate to the point of trade sanctions the memory sector historically becomes a primary battlefield. Micron has navigated the Chinese regulatory friction before and any renewed tit for tat or fight or restrictions could accelerate domestic p purchasing mandates in Beijing where they're going to just ensure that they have to purchase from Chinese memory makers like CXMT and it'll create revenue uncertainty or could create revenue uncertainty for Mike. So those are the yellow signals. Let's move to a couple red signals before we wrap up the video. The one I wanted to go through was just the options overview because we're seeing a lot of volatility in the sector right now. If you look at the options uh uh overview that you see in your screen right here from Micron. Few things I want to call out. One on the top of the righthand column I want you to look at what we're seeing is the the put call ratios because today across all of the memory titans whether it's Micron, SanDisk, Western Digital or Seagate, this put call ratio was well above one. Western Digital was at a 1.79. Seagate at 1.54, SanDisk I think was a 137. You can see Micron at 1.23.

[00:16:38]So across the board the put volume heavily dominated the call activity and the total put to call open ratios are also all well above 1.3 for all of the memory titans right now. So when institutional desks aggressively buy downside put protection at this type of scale, it tells us that smart money was actively derisking and positioning.

[00:17:00]They're positioning themselves for further downside going into Monday morning. And we see that on the expected move at the bottom of the lefth hand column. We're seeing expected moves range right now from 4.3% for Mike Brown up to 12% for SanDisk and Seagate. This means that option market makers right now they're flooded with put orders in they were flooded with put orders into the close because dealers who sold these puts are now at net short gamma. Any weakness at Monday's opening forces them to sell underlying shares to dynamically hedge the risk, creating a mechanical automated sell-off that could easily accelerate these shares lower. So this dynamic hedging loop is precisely why this option setup is a red signal in my opinion that we can't ignore. Going into Monday morning at the opening bell, Monday's tape, we have to keep a close watch on the lower expected range boundaries for Micron specifically. It's the 880 for Seagate. It's 748. If those lower bounds are tested early, dealer hedging can trigger secondary liquidation ways before premiums finally stabilize. And then the other red signal that we can't ignore for today, and I mentioned in the beginning, a celebrity short position. So, we're seeing Michael Bur double down on his short position with Micron. He came out today and you see in his substack he posted that his short position he po that he sold more short shares for Micron Technology at 933.86. He also added to his his uh Nvidia short position is what what we should be concerned here is what he said in this the short stack. This is what could concern us as memory investors because it's not just the entry price.

[00:18:43]It was this core argument he was call he's not just calling micron overvalued.

[00:18:48]He's directly challenging the sustainability of the the AI chip demand. He's arguing that future a hyperscaler revenues are being majority finance through circular offbalance sheet funding arrangements right now.

[00:19:01]So, what we could see on Monday, if retail momentum, if retail momentum funds, if they start to begin to frontr run this uh uh Bur's short thesis at Monday's opening, it could amplify the dynamic hedging pressure on market makers and test Micron's critical downside support values. You know, their their support levels at 900, 880. It could test that before we even get into the earnings week, this make or break next week for us. And as I talk about that, let's just jump over and take a look at what we have on the table for us. Guys, next week is going to be a critical week for the sector. If you look on Tuesday, we have Seagate.

[00:19:40]That'll kick off the week overall. And as we go into Wednesday, let me pull down some more of these just to make sure I don't miss any. And as we go into Wednesday, you'll see uh you'll see that we have boom boom after the close Microsoft, Meta, we have ARM as well. We also have Lamb Research, some big names.

[00:19:59]Let me just double check here. We're not missing any else. I think that's the big one. I'm just more worried about the hyperscalers. And then on Thursday, we see Apple, we see Amazon. This is going to be a massive test for the sector. As I said, this is kind of a make or breaker all when we see, you know, in a very short period of time. You have Microsoft, Meta, Apple, and Amazon all dropping their earnings. Guys, these are the companies that are behind the 700 billion plus AI center buildout and we need to see if it's going to maintain momentum or is it running into spending fatigue. The primary question for every memory investor right now that needs to be answered next week with these earnings is is the hyperscaler AI capex is that spot staying wide open or are they slowing that flow down over? We need to hear Microsoft, Meta, Amazon. We need to hear them explicitly raise their fullear infrastructure capex guidance.

[00:20:52]We also need to hear SKH Highix and Seagate confirm that enterprise HBM as well as highcapacity are fully booked through 2027 and we see expanding gross margins for those companies. This is precisely why next week is a critical yellow signal. What is a make or break in my opinion for the sector? Because if hyperscalers even signal a slight pause in server procurement or express hesitation around the AI infrastructure buildout or say they're going to slow capex down, it will have a significant impact on the memory sector. It will drive down a kind of broader valuation rerating for the sector. Now on the flip side, if big tech reinforces the aggressive AI spending and if we see SKHix, if they confirm that there is unconstrained HBM demand in the market place, it will validate the physical memory fundamentals and it will be it will drive strong upside momentum in the sector in my opinion. So let's wrap up the video with what we saw. Give you my conclusion as we always do on the scorecard guys. The green across the board was the agentic AI. It's driving memory demand. what we heard from Morgan Stanley, what we're seeing from AMD, what they're mentioning around the shift to Agentic AI as they're validating the memory wall. And on the yellow side, the Korean supply deals. I mentioned it's kind of green, but it's yellow for Micron. They make have to make sure they secure similar long-term deals and they stay competitive against the Korean companies as they work in a tandem together. the Washington policy risk right now that open letter that we saw from Nvidia and 20 and 24 other companies right now I'm worried a little bit about the retaliation risk if we do if we have sanctions if we have restrictions on you on the Chinese companies and then the earnings week it is a huge week for us you see seagate skyinex Microsoft Meta Amazon it's a critical week for us to learn more about AI capex guidance and memory demand visibility the red signals we can't ignore the connection with the Asian markets that contagion that comes across the Pacific. It just it is going to be this way as we move forward.

[00:22:59]Unfortunately, we are often going to see de-risking before our markets even open.

[00:23:03]We're seeing option markets under pressure heading into next week and of course Michael Bur adding to it short position will certainly drive more anxiety in the sector overall. My takeaway today is constructive but defensive. So, it's a 6.9 out of 10. My long-term fundamentals, they remain intact for this sector. My conviction remains strong, but the near-term risk has increased meaningfully as we head into next week. As I mentioned, next week is a definite make or break week for all of us in this sector. So guys, if you like this breakdown, make sure you hit the like button. Make sure you subscribe to the channel. Hope you're having a great night. Look forward to you seeing the next one. Take