Motley Fool Money - Micron Day Is Here!

Starting point is 00:00:02 It's Micron Day on Wall Street. Motley Cool Hidden Gems Investing starts now. Welcome to Motley Cool, Hidden Gems Investing. 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.

Starting point is 00:00:34 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? Right now, no company is more emblematic of the AI rally than Micron. Believe it or not, the stock is up 270 percent this year. It's up a lot more over the last 12 months.

Starting point is 00:00:56 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 or 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 relic 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

Starting point is 00:01:38 in the last few days. But a strong showing, I think it might just ease concerns and draw buyers back in. You know, so 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 do 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 band with memory, what's happening with, you know, competitors and pricing. So what are the

Starting point is 00:02:22 things that you're looking for in this earnings report that may actually extend far beyond micro? 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? to be 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 band with memory or HBM capacity all the way through the end of 26.

Starting point is 00:02:48 They've got their advanced HBM3E chips. Those are essentially digital gold or the backbone for that next-gen gen hardware like Nvidia's Blackwell architecture. This is also a company that just inked a major enterprise deal with Anthropic to power their clawed models. You know, demand is very much outstripping supplies. 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 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

Starting point is 00:03:19 announcement from South Korea's XK. Heinix 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 microam that's building very highly specialized, high margin, ultra-complex HBM infrastructure.

Starting point is 00:04:00 It's required for advanced AI applications. And we're also looking at a reality despite no pressure that it was under yesterday. This is a business that skyrocketed more than 700% 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

Starting point is 00:04:24 the past. And I think if you can 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 band with 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 U.S. government has not been super fond of. But if we're going to see, you know, $2,000 iPhones, maybe

Starting point is 00:05:03 those things are looked past just a little bit. Yeah. So here's the thing. This is why you never invest based on one metric, because Micron Today trades at under 20 times forward earnings. That looks really, really good. But what you miss there, the context is, I think what as Rachel said, 1,000% jump in earnings per share. So it is cheap if that is sustainable. If this is the new normal, if from here, this is how they earn. If they really are just a different company now, this is a buying opportunity. Call me skeptical here. Because I think, as you say, there's just a lot of choices. I think it's actually a risk here that if they put two men, I guess, chips in the AI basket and sort of abandon the core business that drives a lot of their volume,

Starting point is 00:05:52 or at least allows others to build up there while they're focusing on what... And you're talking about DRAM in particular. Yeah, yeah. They better hope this AI sustained spending pace lasts forever. And again, we've talked about what that means for the rest of the Ecosia. It just doesn't seem like that's possible, you know, that everybody wins here. But yeah, it's all based on what has happened. It works today.

Starting point is 00:06:16 May it long continue as someone who doesn't have any short positions. But I am personally, I am zero decided. to buy this company in general and definitely not right now. Yeah, I want to put some numbers to those valuations that you were talking about. Estimates for fiscal 2027 is for $1.201.80 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,

Starting point is 00:06:52 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're going to get to Meta's prediction market. You're listening to Motley Fool, Hidden Gems, investing. Hey, Fidelity. What's it cost to invest with the Fidelity app? Start with as little as $1 with no account fees or trade commissions on U.S. stocks and ETFs. That's music to my ears. I can only talk. involves risk, including risk of loss. Zero account fees apply to retail brokerage accounts only. Zero dollar commission does not apply to customers designated by Fidelity as a professional

Starting point is 00:07:28 equity trader. A limited number of VTFs are subject to a service fee of $100. See details at Fidelity.com slash commissions. Fidelity brokerage services LLC, member NYS-E-S-I-C-SipC. Welcome back to Motley Fuling Jem's 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, you know, take a look at that one.

Starting point is 00:07:51 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 yes or no question. You don't use cash. You use free points to buy a yes or no ticket. And the more popular in answer gets, more points that ticket costs to buy. If your guess actually comes

Starting point is 00:08:28 true, the ticket pays out. If you're wrong, you lose your points. Right now, there's no real money involved, which is very essential from the legal front, because it essentially allows meta to sidest up 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,

Starting point is 00:09:08 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. it'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 on 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 have, they've leveraged it

Starting point is 00:09:49 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. At 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 if there isn't the same, throw it out of the 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.

Starting point is 00:10:21 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 on? Yeah, Kylie. Full disclosure, I had to Google exactly who Kylie was, like what Kylie was. I did think of other Kylie's from like the 90s or 2000s, but yeah, no, I didn't. I've heard of Kylie Jenner. I'm happy that she's happy with these glasses. I sort of think that meta is on to something here. I'm going to reverse course only because by comparison to what Snap announced, meta looks like a real winner. They're not charging $2,000 for something with a couple hours of battery life. They're not saying it's going to replace the phone.

Starting point is 00:11:17 And yet you're going to have to charge it every couple hours. So I think, wow, this looks common sense. Meta generates $56 billion in sales per quarter. This is not a needle mover. And I'm skeptical about the whole this, we're going to defeat the iPhone and create a new ecosystem and kind of, you know, a stealth play on that. I think it's just going to be a novelty product. But meta generates cash and meta likes to spend cash.

Starting point is 00:11:42 We know that. And like I say, I am much more bullish about this than I am in the snaps. Yeah, Rachel is this seems at least a little bit meaningful. This is a huge sponsorship. And they're moving at least further into the fashion direction, which is clearly not what Snap was doing last week. These kind of celebrity partnerships are sort of nothing new in the world of big tech. So I think it's probably a smart move on their part.

Starting point is 00:12:03 You know, the frames look very trendy. They're like trendy, slim fashion, sunglasses. The case actually has a built-in makeup mirror. There's a digital AI assistant built into the glasses. It's actually voiced by Kylie Jenner herself. You've got a standard version that costs $299.99. And then if you want that voice profile, it goes up to $399. So I'm not sure yet if this is a project that is going to be a real driver of Mehta's business moving forward.

Starting point is 00:12:27 I think we've seen so far that the adoption curve for this type of hardware isn't necessarily there. But I do think experimenting with more fashion-oriented glasses versus a lot of the clunky competitors that we've seen. Perhaps that's a smart angle to take. I don't think this is something that Mehta needs. I think this is something they're looking to try out, as we've seen with a lot of their projects in the past. If you're an investor, I think it's something to pay attention to. I don't think it's something that's going to be driving the business, at least not in the near term. A decade into the VR and AR experiment, we're maybe getting a little bit closer to something we can actually buy as regular consumers and not feel too goofy wearing around.

Starting point is 00:13:05 We'll see if there's a prediction market on when we can get Lou in a pair of these glasses. When we come back, we're going to touch on Alphabet joining the Dow. You're listening to Motley Fool, Hidden Jems, Investing. Hey Fidelity. What's it cost to invest with the Fidelity app? Start with as little as $1 with no account fees or trade commissions on U.S. stocks and ETFs. Hmm, that's music to my ears. I can only talk.

Starting point is 00:13:30 Investing involves risk, including risk of loss. Zero account fees apply to retail brokerage accounts only. Zero dollar commission does not apply to customers designated by Fidelity as a professional equity trader. A limited number of VETFs are subject to a service fee of $100. See details at Fidelity.com slash commissions. Fidelity brokerage services LLC member NYS-I-S-I-C. Staple's Preferred Business Membership, built for busy business owners, because you've got bigger things to think about.

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Starting point is 00:14:23 but Alphabet is now making its way into the Dow Jones Industrial average. Rachel, what do we need to know? So Alphabet's joining the Dow. This is effective before the opening bell next Monday, June 29th. They're replacing Verizon. So this is a pretty massive shift away from obviously a legacy telecom player and very much into the core of the AI economy. The Dow is a price-weighted index, so stock price dictates how much influence. influence a company hold. So Verizon's low share price meant that they had represented a very small

Starting point is 00:14:48 portion, 0.5% of the index. Alphabet with their share price is going to instantly have a 4% waiting. That is going to be the seventh largest component in the entire index right behind American Express. Alphabet's going to be the fifth member of the Mag 7 to enter the Dow. Now, it's worth noting this isn't necessarily a big mover of share price actually. Back when Amazon and Invidia were added back in 2024, their actual inclusion days were big duds. But I think the big takeaway for me is you're swapping out at sort of a slow growth utility like Verizon for a hyperscaler like Alphabet, very much aggressively increasing exposure to the mega cap tech and cloud infrastructure place. Basically that. It's irrelevant for Alphabet shareholders. To me, this is the Dow telling on

Starting point is 00:15:27 itself. This is a reminder of how pointless the Dow is. You have 30 companies picked largely well after the world has realized their value. Verizon was the only representation from the communication sector. And so what? The committee finally heard about the internet and is giving up on Ma Bell. As Rachel said, the price weighting means that you're 0.5% of an index of 30 stocks, meaning that Verizon's movement had zero impact on the Dow. So the index basically had zero meaningful representation from communications here. It's tempting to be the, you know, shock jock and say, okay, this means alphabets on their way down. I don't think that's the case, but the committee has a terrible track record of being late to the party. So I don't know,

Starting point is 00:16:10 maybe it means that Alphabet is so mainstream now that it can't, you know, significantly outperform. I doubt it, though. I think this is just them trying to stay relevant and Alphabet would just go about their business. Yeah, it's so interesting to see the difference, these indexes in the way that they're covered on a day-to-day basis when I was growing up. The Dow Jones Industrial average, first of all, was mostly an industrial average. And second of all, it was the thing that was quoted every night on the evening news. The Dow was up 15 points today or down 10 points today. And people generally knew what that meant. Now we talk about the S&P 500 or the NASDAQ 100.

Starting point is 00:16:46 Those are better indicators and those are market cap weighted, meaning that they're weighted based on how big the actual company is. So it's maybe a better indicator overall. One more just kind of not related to us, but just public service analysis here on the points. 100 points were a lot of points when the index was like, I don't know, a thousand points. Yeah.

Starting point is 00:17:05 But the index is 52,000. today. And we are still going crazy about 100 points. I don't really want to have to get into the math here, but it's a lot less significant. Yeah, always, always look at things in percentage, but yet just ignore the Dow. We have moved on, I guess, from the Dow, but I think it's still interesting that this is something that we talk about. And now it's become a tech index more than it is a industrial index. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have four more recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows the Monique Fool's editorial standards.

Starting point is 00:17:40 It is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Rachel Warren, Lou Whiteman, and Christy Waterworth behind the class, I'm Travis Williams. Thanks for listening. We'll see you here tomorrow.

Motley Fool Money - Micron Day Is Here!

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