The Roundhill Memory ETF (DRAM), edged up by 0.1%, while the iShares Semiconductor ETF (SOXX) was up 0.01%.<\/p>\n
Bulk Highlights CXMT\u2019s Higher Chip Costs Over SKHY, MU<\/p>\n
Bulk also highlighted that CXMT has to incur a higher cost in manufacturing its chips when compared to rivals SK Hynix, Micron, and Samsung.<\/p>\n
\u201cCXMT is still two to three generations behind SK Hynix, Samsung, and Micron when it comes to the performance of their chips. So for every chip they produce, they have to spend 20% to 30% more on a cost per bit basis,\u201d he said.<\/p>\n
Bulk also believes that CXMT may not catch up to SK Hynix, Samsung, and Micron anytime soon due to constraints in building out its fabrication facilities and procuring tools from companies like ASML Holding (ASML).<\/p>\n
However, he said that the supply and demand imbalance is so severe that CXMT\u2019s profitability and demand continue to remain good. \u201cThey will probably do revenues of $50 billion this year and gross margins of around 70% with chips lagging a few generations compared to the incumbents,\u201d Bulk added.<\/p>\n
AAPL\u2019s Attempts At Diversification Beyond SKHY, MU, Samsung \u2018Understandable\u2019<\/p>\n
Bulk also said that Apple Inc.\u2019s (AAPL) attempt at diversifying its memory supply beyond SK Hynix, Micron, and Samsung is \u201cunderstandable\u201d as the iPhone maker tries to negotiate prices down amid the ongoing supply crunch.<\/p>\n
He also said that Apple had previously tried to add Chinese memory manufacturer Yangtze Memory Technologies (YMTC) to its list of vendors for iPhones sold in China.<\/p>\n
\u201cHowever, it is a real security concern in Washington, and I think that the chances of Apple adopting CXMT and YMTC remain fairly low,\u201d Bulk said.<\/p>\n
Bulk Says SKHY, MU, Samsung Earnings Visibility Is \u2018Improving Materially\u2019<\/p>\n
Bulk said that long-term agreements will provide better earnings visibility for memory chip makers going forward, as companies like Micron and now SK Hynix are focusing on these deals to lock in revenue and margins.<\/p>\n
\u201cWe\u2019re moving from a market that is almost entirely driven by cyclicality, to a market where around half of revenue is locked in through these long-term supply agreements at gross margins of 50% to 60%,\u201d he added.<\/p>\n
Bulk said that these deals create a very different investment setup for companies in this sector compared to the previous thesis of playing the boom-and-bust cycles in the memory industry. He added that the earnings visibility of companies in this sector is already \u201cimproving materially.\u201d<\/p>\n
The Futurum analyst also said that while memory chip makers may have approached \u201cpeak profitability,\u201d he does not expect the current gross margins to nosedive.<\/p>\n
\u201cHowever, given the supply constraints that we continue to see and the very strong demand driven by AI, which is also sustainable in our perspective, we don\u2019t expect margins to collapse from here,\u201d he said.<\/p>\n
Bulk believes that the gross margins of memory chip manufacturers could increase slightly from current levels through the end of this year, then stabilize around 70% to 75% before gradually declining over the next decade.<\/p>\n
The S&P 500 ETF Trust (SPY) is up 16% over the past 12 months, while the Invesco QQQ Trust (QQQ) is up 19%. The iShares U.S. Technology ETF (IYW) is up 28% during this period.<\/p>\n
Also See:\u00a0FOMC Meet: Fed Is Largely Expected To Keep Rates Unchanged, But Economists Say The Risks Have Shifted<\/a><\/p>\n For updates and corrections, email newsroom[at]stocktwits[dot]com.<\/p>\n
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