This filing highlights a fund manager's warning that current elevated earnings in memory stocks, driven by AI demand, may be misleading due to the industry's inherent cyclicality. While AI is boosting demand and prices for DRAM and HBM, the manager cautions against extrapolating these 'sky-high profits' too far into the future, suggesting that today's earnings may not reflect normalized economics.
The filing discusses how the AI boom is significantly increasing demand for DRAM and HBM, leading to higher prices, margins, and earnings expectations for memory companies like Micron, SanDisk, and SK Hynix. However, Allen Bond of Jensen Investment Management warns that these 'sky-high profits' are not a new normal due to the highly cyclical nature of the memory business. This implies that while short-term earnings look strong, investors should be cautious about long-term valuations, as supply could eventually catch up to demand, leading to a downturn. The key risk for traders is that current stock prices may be overinflated based on temporarily elevated earnings, making them vulnerable to future corrections when the cycle turns.