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Summary
TLDRThe video discusses Micron's impressive AI revenue, contributing significantly to the US GDP, estimated at around 4%. Despite past struggles, Micron's current performance is robust, with high demand for AI server chips. However, there are warnings about potential oversupply and competition in the future. Additionally, China's efforts to stabilize its economy include measures to control housing prices and stimulate consumer spending, which has positive implications for the market.
Takeaways
- ?Í🏼 Micron's AI revenue is contributing significantly to the market, sending it to new highs.
- 💲 Artificial Intelligence (AI) is projected to contribute around $100 billion to the US GDP in 2024, which is about 4% of the total $24 trillion economy.
- 💵 Despite previous losses, Micron's current financial standing is robust, with excellent margins due to high demand for their AI server and data center products.
- 💲 Micron's high bandwidth memory products for AI are reportedly sold out through 2024 and 2025, indicating strong and sustained demand.
- 💵 The company's gross margin has seen a significant increase, jumping almost 9 percentage points in a single quarter.
- 💲 Micron's earnings have exceeded expectations, with better-than-anticipated EPS and revenue guidance.
- 🔨 There's a warning from Micron about potential oversupply and increased competition which could affect margins and pricing in the future.
- 💵 Capital expenditures are high for Micron as they invest in manufacturing capabilities to meet demand, resulting in minimal free cash flow.
- 💲 The company's balance sheet is stable, with sufficient cash and short-term investments to cover debt obligations.
- 💵 There's a broader market optimism due to China's economic policies aimed at stabilizing housing prices and increasing consumer spending.
- 💲 Despite positive market trends, there's a noted concern about potential recession signs, such as government payroll peaking, consumer loan delinquencies, and personal savings rate decline.
Q & A
What is the estimated contribution of artificial intelligence to the United States GDP in 2024?
-Artificial intelligence is estimated to contribute around $100 billion to the United States GDP in 2024.
What percentage of the total GDP does the estimated AI contribution represent?
-The AI contribution represents about 4% of the total GDP in the context of a $24 trillion economy.
What is the current GDP growth rate according to the Atlanta Fed?
-The Atlanta Fed thinks that the GDP growth rate is sitting at 2.9%.
How did Micron perform financially in the same quarter last year?
-Micron lost $1.4 billion in the same quarter last year due to a downturn in the memory market.
What was Micron's gross margin in the quarter discussed in the script?
-Micron's gross margin for the quarter was 35.3%, which is a significant increase from the previous quarter.
What does Micron's high demand and limited supply suggest about their current market position?
-Micron's high demand and limited supply suggest they are currently able to maintain high margins due to the lack of competition and strong market position.
What is the warning Micron gave regarding their future performance?
-Micron warned that as supply ramps up, there is a risk of price collapses and competition could erode their margins, potentially leading to excess supply.
What is the current status of Micron's free cash flow?
-Micron's free cash flow is relatively low, with expenditures for plant, property, and equipment significantly outpacing incoming cash flow.
What actions is China considering to stabilize their economy according to the script?
-China is considering measures such as stopping the oversupply of new construction and planning additional fiscal spending to support consumers, amounting to about $284 billion.
What are some of the leading indicators suggesting a potential recession as mentioned in the script?
-Some leading indicators suggesting a potential recession include the inversion of the 10-year and 2-year treasury yields, peaking of government payrolls, delinquencies in consumer loans, decline in personal savings rate, and construction job openings rapidly falling.
What is the current status of Micron's balance sheet according to the script?
-Micron's balance sheet is acceptable, with enough cash and short-term investments to cover short-term debt, and sufficient receivables and inventories to cover long-term debt if sold at full price.
Outlines
📈 Micron's AI Revenue and GDP Impact
The speaker begins by discussing the impressive performance of Micron's artificial intelligence revenue, which is contributing significantly to the GDP. It's highlighted that AI is estimated to contribute around $100 billion to the US GDP in 2024, which is about 4% of the total $24 trillion economy. The speaker also mentions that the Atlanta Fed's current GDP estimate is at 2.9%, which is above trend growth, potentially influenced by AI. Despite this positive news, there's a warning about future competition and the cyclical nature of Micron's business, which experienced a loss of $1.4 billion in the same quarter of the previous year due to a poor memory market. Currently, Micron's margins are excellent, with high demand for their AI server and data center products, which are sold out for 2024 and 2025.
💹 Micron's Financial Performance and Warnings
The speaker continues by detailing Micron's financial performance, noting that they have beaten expectations on EPS and revenue guidance. They discuss the company's strong guidance for the next quarter, with expectations of continued server demand, particularly for AI servers. The speaker also reads sections from Micron's earnings call, indicating confidence in their product demand and ability to ramp up production. However, a warning is issued about potential oversupply and competition, which could lead to price collapses and reduced margins. The company is investing heavily in capital expenditure, resulting in minimal free cash flow. Despite this, their balance sheet is considered healthy, with enough cash and receivables to cover debts. The risks identified include over-spending, collapsing chip market prices, and competition eroding margins.
🏢 China's Economic Measures and Market Outlook
In the final paragraph, the speaker shifts focus to China's economic measures, discussing efforts to stop the fall of home prices and reduce oversupply in new construction. China is also considering additional fiscal spending to support consumers, amounting to about $284 billion. This has been positively received by the market, with stocks like oil showing an upward trend. The speaker also touches on various economic indicators, expressing concern about potential recession signs, such as delinquencies in consumer loans, a decline in personal savings rate, and other economic data points. Despite these concerns, the speaker notes that the market's short-term euphoria continues, encouraging viewers to make profits and remain vigilant.
Mindmap
Keywords
💡Micron
💡Artificial Intelligence (AI)
💡Gross Margin
💡Supply and Demand
💡CapEx (Capital Expenditure)
💡Free Cash Flow
💡GDP (Gross Domestic Product)
💡Consumer Spending
💡Recession
💡Earnings Call
💡Cyclicality
Highlights
Micron's artificial intelligence revenue is sending the market to new highs.
AI is estimated to contribute around $100 billion to the US GDP in 2024.
AI's contribution to GDP is about 4%, which could be the difference between positive or negative growth.
The Atlanta Fed thinks the current GDP is sitting at 2.9%, which is above trend growth.
Micron is a cyclical company experiencing rapid boom and bust cycles.
Micron lost $1.4 billion last year due to a poor memory market.
Micron's high bandwidth memory products for AI servers and data centers are sold out for 2024 and 2025.
Micron's gross margin for this quarter is 35.3%, a significant increase from last quarter.
Micron beat EPS guidance by 14% and Revenue guidance by 5% in this quarter.
Micron expects server demand, especially for AI servers, to continue to be strong.
Cloud and Enterprise AI servers are driving the extra demand for Micron's products.
Micron warns that competition could increase and affect their high margins.
Micron is investing heavily in capex to continue manufacturing more products.
Micron's free cash flow is low, but their balance sheet is acceptable.
China is trying to stop the fall of home prices and oversupply of new construction.
China is planning additional fiscal spending to help the consumer economy.
AI can boom, but a recession is still possible.
Various economic indicators suggest a potential recession could be near.
Despite potential economic downturns, the short-term market euphoria can continue.
Transcripts
well holy smokes everyone this is a game
Cher in terms of what we just saw on
micron's artificial intelligence revenue
and what it means for GDP as well as
what we just heard from China but let's
start right at the top also small note
I'm at an event so I'm only going to be
able to go live for the market open live
stream for a few minutes today so we can
hit the Q2 GDP data which is old news
anyway the unemployment claims and some
of the other stuff will cover that but
right now I I want to talk to you
these Micron earnings that are sending
the market to new highs it's crazy
they're actually pretty good I'm going
to give them this this is pretty good
there is a warning in them we're going
to talk about that and then China let's
hit it so first uh something to know
about artificial intelligence artificial
intelligence right now is estimated to
make up in 2024 somewhere around a $100
billion in United States GDP that's not
going to be Global that's just US GDP
throw that into about a $24 trillion
economy and your contribution from
artificial intelligence into GDP is
about 4% which is actually pretty good
because it could be the difference
between being positive or negative of
course right now the Atlanta fed thinks
that our GDP is sitting at 2.9% which is
actually also really good uh you know
we've had a Jerome Powell who's told us
oh you know we should be growing at a
below Trend growth and quite frankly
we're growing above Trend right now
maybe maybe we're just above Trend by uh
04 because of artificial intelligence
either way GDP looks good so far uh and
artificial intelligence spending is
definitely contributing now if we were
to only hang our hat on GDP and or on
artificial intelligence and everything
else was flat well we would only have a
GDP of about 4% again artificial
intelligence only making up about 133%
of our GDP most of our GDP is really
made up by you the
consumer so that's this is an important
cont contributor nonetheless especially
when micron pulls off what they just did
now something to know about Micron
that's really interesting before I tell
you what they just pulled off which you
maybe have already heard about a little
bit but something to know is this is a
cyclical company which means you go
through really rapid boom and bus Cycles
just to let you know how extreme those
boom and bus Cycles can be this same
quarter that we just reported last year
Micron lost $1.4 billion because the
memory Market went to trash there gross
margin was - 10.8% which means they were
selling their chips for less than they
were worth mostly memory chips uh and
now in part thanks to their artificial
intelligence ships doing well for now of
course until competition picks up which
there's a warning coming up in just a
moment and there's some this is from
them not from me uh right now their
margins are really excellent because
quite frankly on their high bandwidth
memory products for AI server and data
centers it they they're sold out for
2024 and 2025 which when I first read
that I'm like oh they're sold out for 2
years but then I'm like H this year is
already almost over so they're sold out
for about 15 months which is good
they've already got that pricing set for
that doesn't mean orders can't cancel
but it's certainly a good sign uh and
their gross margin this year is
35.3% on this quarter which is up from
last quarter by like almost 9 percentage
points really actually really good so
this quarter is a smokey hot quarter uh
really great quarter and so the question
is will that last is this a good time to
invest in Micron so one thing I looked
at is uh I looked at uh their guidance
for the next quarter they beat on EPS
guidance by 14% they beat on Revenue
guidance by 5% uh in this quarter they
beat margin by 5% so they are beating
expectations doing very very well here
if I read out some sections of their
earnings call they say from a demand
perspective they expect that server
demand will continue they expect AI
servers to continue to be strong this
year and next year and they don't see
any change in that they think the AI
momentum continues and they're hoping to
get some modest growth in general
purpose servers that's where you
definitely have a lag PCS smartphones
servers kind of the consumer side little
on the soft side but those AI servers
definitely cranking
in terms of demand definitely strength
and data center is driving upside to
what we had communicated prior on our
prior guidance we continue to see really
strong demand from our data centers the
data demand is coming from both cloud
and Enterprise AI servers as well as
well of course to some extent
traditional server origin that's because
that creates a certain base of their
revenues the traditional servers but
most of that extra demand that's making
the difference here is they said it
cloud and Enterprise so remember Google
Microsoft Amazon meta these are the
companies that are like we will buy AI
sea chips and build out AI
infrastructure at any cost because we
will not be left behind even if we lose
money for a while it's like what Mark
Zuck said you know sucks like yeah yeah
you know we're kind of known for doing
unprofitable things for a while and
eventually we're turn unprofitable Fair
okay so what warning did they give well
the first hint that they gave for a
warning was uh actually in the face of
of very good news which is we've seen
very high demand for our product and we
feel confident in our ability to ramp uh
I mean all of that ramp we have for 2025
is really limited by Supply hm and then
they start talking about competition so
I always find this a very interesting
one because when you start talking about
oh we're Supply limited right now what
you're really suggesting is hey we're in
a place where we're uh able to pull
these high margins because
there is limited Supply which is
fantastic don't get me wrong like milk
the margins while you can it just does
give a little bit of an awareness that
where the company says look there's
going to be a reason why we're not going
to guide into 2026 here because you know
prices could collapse as Supply ramps up
and they are blowing money into capex in
fact their free cash flow is only
somewhere around $200 million uh I want
to say that was for the year but let me
double check that really quick because I
have a cash flow statement right here
sorry I'm at a I'm at a conference and
uh that's why I'm not going to be able
to be live at my normal time today and I
snuck away into one of these little
boardrooms over here just to make sure
we can chat okay here we go expenditures
for plant property and Equipment uh $8.3
billion blowing money into capex capital
expenditure so they can continue to
manufacture more uh and 8.5 in in in
incoming cash flow uh so really very
very little actual uh free cash flow
which is not a surprise uh they they
they are a manufacturer so this is uh
they have their own Manu you know
fabrication plants this is not like an
Nvidia uh they actually uh conduct the
R&D and they manufacture so this is not
like a high margin Nvidia where you just
send it all to tsmc and you take your
70% gross margins which is one of the
reasons Nvidia is just such a sexy stock
uh but uh that is for the year ended
yeah so basically no free cash flow for
the year ended now don't worry their
balance sheet is acceptable they have
enough uh cash and short terms to cover
their short-term debt and then frankly
they have enough receivables and
inventories if they sell an inventory at
full price to cover their long-term debt
so their balance sheet is just fine
obviously their margins are excellent
this is a cyclical business and uh they
think they are very well positioned from
a competitive point of view however they
do also make it clear they're asked hey
so you feel pretty good for fiscal 2025
you just don't want to set the bar and
be accountable to that bar but you feel
pretty good is that a fair way of
summarizing everything you've said asks
an analyst the VP and CFO says we've
given some positive indications for the
year and we're Vigilant at all times
about our cost structure about our cost
performance and the discipline of our
Capital spend and maintaining stable
share and where we think we're doing a
good job of executing well and managing
the risks okay got it so what are those
risks well
overspending collapsing the prices uh in
the chip market and then competition
taking your margin away at the same time
as you now have way too much excess
Supply so it kind of makes sense why
like let them bask in their Glory a
little bit this is this is great news
okay it's going to it's pumping the
entire AI market and premarkets and and
you would expect that dude it's like
4:00 a.m. this is ridiculous I'm East
Coast so but you know I came here from G
uh but I'm just looking at my clock like
oh my gosh I'm already in a suit oh
no uh but anyway it's really good at the
same time now you've got China they held
a meeting with their pollet bu Bureau
and they're talking about trying to fall
stop the fall of home prices they're
going to stop the over supply of new
construction that's something you should
really tell Austin and Texas as well
like maybe if yall stopped building as
much you wouldn't have as many issues
but anyway uh and and they are
potentially planning some uh local
Municipal spending as well as consumer
additional fiscal spending to to help
the consumer of about $284 billion so it
seems like on a daily basis here they
kind of see the market pop up a little
bit on these stimulus ideas and then
they're like all right all right got it
yeah the market wants stimulus let's
give them
more so it's good uh I mean it's it's a
wonderful thing for for markets on this
you've actually got oil I mean I don't
think oil is moving on on China here
it's probably more of a Saudi Arabia
issue gold though going over 2700 bonds
relatively stable and pre-market
nasdaq's up 1 a 12% uh Dow in S&P also
pretty positive I think the only thing
that could really screw this up is in a
couple hours we'll be getting
unemployment claims data I that is such
a lagging indicator I can't imagine
that's bad we get Q2 GDP who gives a
flying F about Q2 GDP third revision
price index GDP whatever uh you will get
durable good manufacturing uh reports
and some other data I'll cover that when
the time comes but in the direction of
artificial intelligence if micron's any
guide there there's no slowdown here uh
maybe there's some cheap opportunities
for you to take advantage of uh and keep
in mind that this is uh AI can boom and
you can still have a recession uh but it
definitely helps like not having AI
you'd still be a 2% GDP still be over 2%
GDP so you haven't actually seen that
translation to substantial weakness just
yet of course you know as I've
maintained for a while many of the
leading indicators suggest we might be
you know one large shock away from
substantial layoffs and then your
consumer gets crushed in the near
recession but then again you know that
could be true at any given point in time
of course I I do think we're in a
particular position now where some of
the indicators of recession are more
numerous than I have ever seen in my
career uh which makes me a little bit
more dare I say nervous and watchful but
consider it you know it's not just the S
rule it's not just the 10 to inversion
which usually when we get to 50 to 90
basis points that's when the recession
starts okay we're at like 20 basis
points inverted right now but it's also
uh the peaking of of government payrolls
uh uh following the peaking in privates
the delinquencies in Consumer loans
credit card loans the decline uh uh in
the personal savings rate it's not good
now under 3% which is terrible at the
same time as incomes are only Rising
somewhere around 1% not good
architectural buildings down Isa
manufactur ing down ISM Services above
50 but very very low relative to normal
boom times construction spending month
over month down pricing power at
companies outside of AI substantially
down uh you look at um uh I went away
construction job openings rapidly
falling temp hiring longest stretch of
negative readings Drome Powell's warning
we seek no further cooling yet they
still only went down 50 basis points I
think they got a like surprise cut down
200 to honestly that would make me very
very bullish
because then they might actually avoid a
recession beige book 9 out of 12
districts uh flatter declining the
Challenger report showing the slowest
hiring since August of 2009 the number
of unemployed for 27 and uh weeks or
more never increasing consistently
absent a recession it is the restaurant
performance index sitting under 98 which
only occurs in a recession so I mean I
hate to say it
but when you put that list together it
just doesn't sound that sexy anymore but
hey in the short term the Euphoria can
march on which is fantastic I mean good
go make money uh you know take profits
as you feel comfortable or don't and uh
I love you all thank you so much if you
want personalized Financial advice uh
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folks thank you so much goodbye and good
luck
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