Dear Fellow Investor,
Good morning. Happy Saturday!
I hope you’re getting a little rest this weekend. I know I am.
But first, let’s talk about memory chips.
Three weeks ago I told you why I wasn’t shorting Micron, even though I agreed with Michael Burry’s reasoning.
I said memory is a commodity business.
I said China was adding capacity fast.
And I said I agreed with the bear case 1,000% — I just couldn’t tell you when it would show up.
This week, it showed up.
Fair question: what happened? Let’s dig in.
What China Just Did
Last weekend, China’s leading memory chipmaker, ChangXin Memory Technologies — CXMT — said it had made key progress on a new chip design.
The idea is simple.
Pack more data into a smaller space.
More memory per chip means more supply from the same factory.
CXMT reportedly plans to roll out a new server-memory product built on that design by the end of this year.
Until a blockbuster IPO this summer, most American investors had never heard of the company.
They’ve heard of it now.
Citi has pointed out that Washington is unlikely to let Chinese memory into the U.S.
But it doesn’t have to.
Every chip CXMT sells to a data center in Europe or Asia is a chip Micron doesn’t sell there.
HSBC estimates CXMT’s share of the global DRAM market has climbed to around 10%, up from about 4% a year ago.
Then Elon Musk poured gasoline on it.
He posted on X that “China will be making a LOT of RAM in 2028.”
What the Market Did
The reaction was swift.
SK Hynix fell 10% in a single day in South Korea.
Samsung fell more than 7%.
And Micron fell five days in a row.
Over that stretch, it lost about 16% — roughly $196 billion in market value.
It went from a record close in June to roughly 25% below that high.
Seagate, Western Digital and SanDisk got dragged down with it.
I’ve watched this movie too many times.
In almost 35 years of doing this, the memory cycle has never once been repealed.
Prices boom.
Producers rush in.
Supply catches up.
And the stocks that looked unstoppable start to wobble.
Is This the Crash?
Now let me be fair to Micron.
The business is still doing very well.
Its last quarter came in at $54.2 billion in revenue, above the top of its own forecast.
And management says supply and demand will be tighter in the next two years, not looser.
Plenty of smart people are buying this dip.
They may be right for a while.
Remember the lesson of Larry Tisch.
You can be right on the facts and wrong on the timing.
A crowd in a boom can keep going a lot longer than your wallet can.
That’s why I still wouldn’t short it outright.
But this week was a warning shot.
It showed you exactly how fast the story can change in a commodity business.
One announcement out of China.
One post from Elon.
And nearly $200 billion gone from one company in a week.
That’s the problem with selling something everybody else can make.
When someone else learns how to make it cheaper, your pricing power walks out the door.
The Part of the Chip Business I Prefer
So where do I want to be in chips?
I want the business that gets paid no matter who wins.
Not the factory.
The blueprint.
There’s one little-known company that doesn’t manufacture memory at all.
It designs the chip technology that other companies license — and it collects a royalty on every unit built.
Think of it like a toll booth on a highway.
It doesn’t matter whose truck is driving through.
It doesn’t matter whether the cargo sold high or sold cheap.
The toll gets paid.
That’s why this company collects billions of dollars in chip royalties every year.
Elon has relied on it since 2012.
Every Tesla built in the last decade runs on its chip designs.
Every Starlink dish runs on them.
And Elon picked its design for the brain of his new AI1 data center satellite.
Its customers include Amazon, Google, Apple, Microsoft, Meta and NVIDIA.
NVIDIA’s own Blackwell superchips are built on its technology.
It’s so important that when NVIDIA tried to buy it outright, Elon raised the alarm — and regulators killed the deal.
Its data center royalties have more than doubled two years in a row.
China can flood the market with cheap memory.
It can’t flood the market with this company’s blueprint.
And with Elon filing plans to put AI data centers into orbit, I think that royalty stream could get a lot bigger.
Here’s the full story on Elon’s 100X AI Stock:
Have a wonderful weekend.
I’ll see you tomorrow.
“The Buck Stops Here,”
Found this helpful? Share it with others.
Written by Dylan Jovine