Memory Bottleneck Hits Hardware Maker Stocks

Key Takeaways

What's really interesting, you've been thinking about some of these bottlenecks and we think memory is one. We've been thinking about how infrastructure is one of them as well. We're thinking about how power is to EPC. How are investors trying to play this? Are they still worried about an AI bubble or they still all in on the areas that still are in demand? >> Well, there are now bottlenecks are trying to pop as you say. One is energy memory chips. We also have a heavy rise in metal prices especially copper prices that are pressuring the input prices higher and these pressure in input prices started to worry investors in many segments. Not all segments are concerned but many segments especially hallway companies uh and data centers are now feeling the pinch of higher input costs and eventually higher energy prices as well. And one of the other problems is obviously the trade tensions, the potential uh shock to supply chains and all of that is just playing quite negatively into this AI the optimistic AI narrative that we had seen over the past 3 years. >> And then comes TSMC that sort of eased a lot of that anxiety saying look AI demand we see it sure we're cautious but we see it and we build. What does that mean about the ultimate story? How much did optimism get breathed back? Well, it did. TSMC beat estimates. That was not a surprise. That's just another quarter of very strong uh results from TSMC. And they say that the demand and AI remain strong and they're building more data, more more chip plants, excuse me. And that also justifies TSMC's building uh chip plants outside the United States, in Japan, in Europe, and obviously in the US as well. So, the demand remains strong. But building these uh chip plans and building the data centers requires components and the components the supply of components is unfortunately not infinite infinite. So that is going to be a bottleneck and that's going to be a capacity constraint that could uh eventually become a headache for the sector and the growth expectations. Peek, if I showed you a long-term chart of memory spot pricing, it would be for a number of years basically steady only because of the severity in the surge in the last month. At this juncture, do we need to start talking about the impact of memory? You mentioned energy as well on inflation and have a more economic discussion about what this shock, this bottleneck is causing. Well, obviously there are now rising worries about the fact that all these AI demand and resources being limited is going to start pushing prices higher. For the memory chips, we're talking about very big numbers. I mean 30% rise only last quarter according to Samsung's report earlier this month. And as as Ryan also said, I mean this is a very important component of hardware companies and it will eventually start pressuring their their their profit margins and lead to price pressures. Now the question is how much of these costs of these additional costs will be pushed onto the end customers. The reality is that we do not know but the higher the demand the higher the prices will going to be going up and the higher the pressure will be on the profit margins there. The competition is going to be important. The higher the competition or the bigger the the impact on profit margins and these companies will not be able to push the prices too high because well then there will be there will be implications on the demand side. >> The memory bottleneck is that going to be the talking point of this technology earning season? >> Well, yes. I think that is going to be one of the major talking points along with energy and the metal prices as well. all of these input prices are rising. The other thing that we will be really watching very closely in this earnings season is the obviously the headline numbers but not only we will be also looking very closely into how the revenues are being booked and how the loans are also being booked in order to not let the technology companies you know build this narrative but also try to dig into the risk that could be underlying.