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Chapter 1: What is the main topic discussed in this episode?
It's Micron Day on Wall Street. Motley Fool Hidden Gems investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Flynn. I'm joined today by Lou Whiteman and Rachel Warren. And guys, I never thought I would say this, but Micron has a huge earnings report after the market closed today.
This is a company that most of us just didn't pay attention to for most of the last couple of decades. But they are the company that everybody is watching at least for the next 12 hours or so. So Lou, I'll just kind of leave it there. What are your thoughts on Micron being the talk of the day?
Yeah, no pressure, Micron. Just the fate of the entire global stock market is on your shoulders. No pressure at all, right? So context, why am I saying that?
Chapter 2: Why is Micron's earnings report crucial for the stock market?
Right now, no company is more emblematic of the AI rally than Micron, believe it or not. The stock is up 270% this year. It's up a lot more over the last 12 months. It is the single biggest point contributor to the S&P 500. It is literally the engine that is driving this rally. But look, historically, the reason, Travis, we don't think about these companies is memory chips are a commodity.
And there are a lot of competitors with a lot of options for capacity expansion. A lot of people like... flirting with rivals as we speak now. And the last few weeks, we've suddenly become a lot more skeptical about how much higher the AI rally can go. So back to the fate of the entire global stock market.
It's fair to say, I hate to make short-term predictions, but it's fair to say that any flinch tonight when they release earnings, any disappointment would reinforce the fears that have driven the sell-off in the last few days. But a strong showing, I think it might just ease concerns and draw buyers back in. Good luck, Micron.
Apparently we are basing the entire AI trade on a kind of historically commoditized memory provider.
Yeah, Rachel, this is going to be an interesting one because there's a lot of threads to pull on. You know, a lot of times you look at earnings and you go, how did the company do compared to a year ago? How did they do compared to analyst estimates? That's kind of typically how stocks react is what were analysts expecting or were they pricing in? And then what did the company actually report?
What did they guide? There's going to be a lot more to it than that has to do with high bandwidth memory, what's happening with competitors and pricing. So what are the things that you're looking for in this earnings report that may actually extend far beyond Micron?
There's a lot to look at here, and it's important to note, this is not the micron of a couple years ago, right? I mean, Wall Street's guiding for a 1,000% jump in earnings per share. Just kind of got to take a moment and take that in. This is not the business that we used to know. This is a newly minted trillion-dollar company.
They've sold out their high bandwidth memory or HBM capacity all the way through the end of 2026.
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Chapter 3: What factors are influencing Micron's stock performance?
They've got their advanced HBM3E chips. Those are essentially digital gold. They're the backbone for that next-gen hardware like NVIDIA's Blackwell architecture. This is also a company that just inked a major enterprise deal with Anthropic to power their Claude models. You know, demand is very much outstripping supply. So there's a lot of pricing power there.
Management has guided for an 81% gross margin. Revenue is looking to pass $35 billion for a single company. quarter. So just to set the stage a little bit for where the business is at. And that really brings us back to what we saw in the markets yesterday. There are a few factors at play.
You know, we had the announcement from South Korea's XK Hynix that sent shockwaves through the sector in terms of their shifting production timelines. But also we're seeing news about how competitors in China are aggressively leveraging their own semiconductor capacity. You've got major competitor CXMT.
They are building out a truly massive fabrication facility with really one defined clear goal, which is to flood the global market with cheap legacy drip. They've got multi-billion dollar state investments, massive Shanghai facility. So essentially looking to outproduce established players. That's something that I think the market is worried about when it comes to the likes of Micron.
What I will note, though, I mean, this is a company, Micron, that's building very highly specialized, high margin, ultra complex HBM infrastructure. It's required for advanced AI applications. And we're also looking at a reality, despite the pressure that it was under yesterday. This is a business that skyrocketed more than 700 percent over the last 12 months, trailing PE multiple of about 49.
So I like the business. This is not a stock that's even close to being undervalued right now.
Lou, do you agree with that? Because this is one of those businesses where we've seen a lot of these cycles in the past. And I think if you go back to the dot com bubble, Micron was one of those companies. Hey, you know, there's going to be demand forever. And then suddenly you overbuild. Rachel talked about, you know, high bandwidth memory is really the thing that they're focusing on right now.
But they're giving up. DRAM as a result. And who's popping in? China comes in and says, hey, we would be happy to take that business. The company that I am really curious about is Apple here. My understanding is that Apple would love to have some of these Chinese suppliers as one of their suppliers, and they're feeling a lot of pricing pressure.
But that's been something the US government has not been super fond of. But if we're going to see, you know, $2,000 iPhones, maybe those things are looked past just a little bit. Yeah.
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Chapter 4: How is Micron positioned in the AI market landscape?
Estimates for fiscal 2027 is for $121.80 per share in earnings. The earnings for fiscal 2023, negative $5.30. So the big question here is, as this stock is trading for over $1,000 per share, is that $100 the real earnings number long term? Or is it the closer to zero that we've had over most of the past decade? We will maybe learn a little bit more after the market closes.
When we come back, we are going to get to Meta's prediction market. You're listening to Motley Fool Hidden Gems Investing.
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Welcome back to Motley Fool and Gems Investing. Meta makes some news yesterday that I thought was really interesting, Rachel. They're getting into the prediction market. Meta stock is theoretically pretty cheap, so I always want to take a look at that one. But then you look at them chasing all these random things that don't necessarily seem to fit into their core business.
But what are we talking about when we're talking about Meta looking into prediction markets?
Yeah, I feel like this kind of took some investors by surprise. So they're building a new app called Arena, and it's designed to be essentially a direct play on the fast growing world of prediction markets. So if you're curious how it works, you've got to think of Arena like sort of like a video game where you trade real world outcomes. So the app asks a simple question. Yes or no question.
You don't use cash. You use free points to buy a yes or no ticket. And then the more popular an answer gets, the more points that ticket costs to buy. If your guess actually comes true, the ticket pays out. If you're wrong, you lose your points.
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Chapter 5: What should investors look for in Micron's earnings report?
Right now, there's no real money involved, which is very essential from the legal front because it essentially allows Meta to sidestep a lot of the global gambling laws. They can launch the app everywhere instantly. My view of this is Meta is going to be using a lot of these free guesses to harvest millions of pieces of data on human behavior to train their AI models.
I think that is seemingly the most valuable use case here. I'm still curious whether this is actually going to be a needle mover for the business.
You might be right, but do we really need AI models trained off of what people are, what random Facebook users are? Well, Reddit's pretty good data for Google. That's different. I mean, there's a lot more there. I mean, look, here's the deal. For one, remember, this is not gambling. They named it after a sports venue, but it's not gambling arena. I love that.
But look, always count on Zuck to be distracted by whatever the shiny object is that's out there. And that is what's going on here. I don't, maybe it is some like master AI play. I think it's just what's hot. Can we get in on that? And there is logic here, right? This is another thing that should be easily spread over their massive social media customer base.
I don't think it's a massive use of resources here. And look, Facebook marketplace, I think is a good example here. It is at best the second best option and probably I'm being kind here, but They've leveraged it over the massive customer base. So it is worth the time, even if it isn't the dominant player. I think predictions can be the same here.
It's inferior to the standalones, but yet is still viable. End of the day, if you're an investor, this is meta reminding you of who they are. You know, Alphabet, Amazon, there's a lot of these big tech names that are diversified, that are betting on different things. But there isn't the same throw it at a wall and see if it sticks attitude. This is always what Meta has done.
It hasn't been an issue for investors before. I don't think it will be from here, but don't say you weren't warned.
The one thing this reminds me of is Marketplace, you know, them kind of going into the Craigslist business, if you will. And that's been a massive, massive success. I know we use that all the time, even though we don't really use Facebook all that much. I also wanted to touch on the Kylie Jenner is now getting into the meta glasses.
And so Lou, as our fashion and tech early adopter on the show, what are your thoughts of the Starfire glasses that Kylie is showing off?
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