The cure for FOMO with Tech Contrarians

0:00Thank you.

0:30love it if you would catch us up. What you're thinking about today as news is ever changing, the tech space is in people's minds, but not in the same way. How are you looking at the markets right now? So first, thanks for having me back. It's always a great time to talk with you about the tech space and everything happening in general. So, you know, great question. Really, the backdrop on tech, especially after Q1, as we wrap up Q1, is definitely different from the tone that we saw for the bulk of 2025. I think even last time we spoke, which was around mid-February, and that was pre-war, we talked about this dynamic that was building in the market between a tug of war between greed and fear and more weighted towards the latter.

1:11People were kind of afraid, premium valuations kind of. We started seeing big tech companies like Broadcom or like NVIDIA report stellar numbers, but the stock still seemed relatively broken. And we saw that continue on and off through Q1. there's definitely a lot more investor scrutiny on the AI CapEx spend, specifically on the roadmap of where we're heading in this AI cycle. We saw guys like Credo do exceptionally well, but the stock still is depressed year to date down, I think, about 37%. And so even heading into this war, I think that's what a lot of people forget, even heading into this war that's really taken up the full of March, the market was on edge, especially when it comes to tech.

1:53And so that dynamic between green and pure only really intensified in the current backdrop, I would say. The war really started markets. But at the beginning, we saw investors act relatively complacent. And I think that this was an extent, a FOMO or a conditioning because of what we saw last April with the April, you know, Liberation Day from Trump, you know, the whole market melted. And then a couple of days later, we had a buy signal from a true social post and then a 90 day pause and everything really rallied from there. So everyone's kind of worried about missing out seemingly on that aha moment, right, on that comeback.

2:32And that's why I think markets are so caught up on, you know, Trump's every true social post, right? And so we're seeing, you know, we're seeing this kind of dynamic play out. And at the same time, it's interesting, because just as investors are kind of watching how this work plays out, watching for a signal of resolution from Trump, I think Trump, the way we're looking at it, Trump is also very much in tune to how financial markets are pricing this in. And so if we look back at, you know, the totality of March, every time we saw the market really begin to price in the gravity of the situation, and, you know, it is a potentially catastrophic situation if we don't get a resolution sooner, if we see this dragged on further.

3:12Every time we saw the market really begin to price in the gravity of that, we had a post from Trump kind of signal that things are going well or that this is going to be resolved soon. So we saw this on March 9th. Markets began to price in the heat. S &P was falling. That was falling before Trump came out. And he said, if you remember, the war is very complete, pretty much, and kind of gave that kind of mini relief rally. Again, we saw this on the 24th of March. And then again, we saw this. So that was, you know, we saw that last Monday. We saw this this Monday. And we were, you know, over each and every time of this.

3:47I think the dynamic that's showing up is that the relief rallies are more and more kind of losing steam. So there's less faith in a resolution to the sooner. And I think that especially that turned around last week when we saw the Iran side really kind of deny potential talks that are happening towards a resolution. And that was really the card that Trump was pointing forward in these posts. And it takes two to tanko at the end of the day. So the counterpart is denying talks. I think that came as a huge kind of red flag for the markets. And that's why we saw a sell-off continue through Thursday, even after Trump extended that deadline until April 6.

4:25And then we saw that really continue into yesterday. And then today we're seeing things turn around a bit with the most recent update that Iran is also ready to perhaps put an end to this if, you know, there's given specific guarantees. And this comes in light of Trump saying that the war or the Wall Street Journal saying that Trump said that the war could potentially be resolved even without the reopening of the Strait of Hormuz. So there's a lot of different moving parts. I think we've seen the weight of this war and where the importance of it shift a lot throughout this conversation. But I think one thing remains true if we think about this in terms of takeaway, that the market trusts Trump, even if it's against a better judgment.

5:05Everyone has that overarching FOMO fear. No one wants to miss out on the rally that comes out of the resolution of this war. And simultaneously, Trump, I think, is very much specifically this administration in tune to how financial markets are reacting and pricing in the current situation. And I think that's why we're seeing kind of a pullback on the escalation of the situation from the U.S.'s side, at least. We talk about context a lot here, but, you know, I guess it's just ever more important every day. Context is important. So appreciate you highlighting those notes. How are you digesting this news, like news of a conflict resolution, various factors in the geopolitical realm?

5:47How do you digest just that part of things? So, you know, when we look at it, of course, we're, you know, tech analysts, first and foremost. So we look at this and we look at a potential resolution on the table. And I think that's a massive relief to a prolonged conflict that would really pressure, you know, specifically players in Asia like SK Hynix, like Samsung, like TSMC, especially when it comes to the helium. I think that was a core issue in terms of the supply chain disruption, given that Qatar really produces a third of the global helium supply. And that's used in cooling wafers, during etching.

6:21It's also used in flushing out toxic residue. So Samsung and SK Hynix were the most exposed here, considering that South Korea imports something like 65 % of its helium from Qatar. And then you have TSMC and UMC were also exposed, but just to a lesser extent because they recycle their helium at rates of 60 to 70%. They still need to get replenished daily from imports, but they were exposed to a lesser extent. So to see this resolved, I think that really takes the weight off of what is a core in the semiconductor supply chain, which is TSMC, SK Hynix, Samsung, especially given the ballooning demand for chips and the ballooning demands for HBM memory, considering this huge AI infrastructure build-out that remains underway, although stocks aren't necessarily moving like it.

7:11And so that's the first part that we take a look at. And then the second part is that there are two impacts from this if we look at this direct and indirect impact. The first is what you feel at the pump. And then the second and the more scary one to us is how this trickles into higher costs for shipping, higher costs for transport, and overall worsening inflation. And that would be really catastrophic for markets. And already we've seen kind of the expectations we had for Fed rate cuts this year kind of windle down from where they were at the beginning of the year. So I think overall we're looking at a healthier kind of 2026 if we see an end to this sooner rather than later.

7:51I think that the fact that, you know, earlier today we had a signal from the Iran side that there's a potential resolution on the table as a green flag that was missing for the past week when we got news of productive conversations, but nothing from the other side, the counterpart. So I think that things now are shaping up for, you know, towards a resolution on a more solid front because we have both sides confirming this is underway. And we also know that Trump has really taken a step back from the commitment to reopen the Strait of Hormuz. And it seems that he's more using that as a leverage point against Europe being kind of taking a step back, removing his hands and saying that, you know, the U.S.

8:29is OK with its oil supply. They're doing all right. And that, you know, Europe and the rest of the world can go deal with this. So I think that it's turned more political and global on that front. It's not isolated to just the region anymore. And I think that seeing Trump pull out of the war situation rather than escalating it is, I think it's the smartest thing to do. And I think the fact that we're seeing this kind of language come out of the administration really does point to the fact that there was potentially miscalculation going into this to begin with. because, you know, if we have the Strait of Hormuz blocks and a potential on the table for the Bab el-Mandib Strait to be closed as well, then we're looking at, you know, a blockage of 30 percent of the global container shipments and 22 percent of the global oil supply.

9:11So that would really be catastrophic. So I think we're seeing green signals on this pulling back, both for the tech world and for, you know, the macro backdrop in general. So in terms of updating, you know, So just in terms of your last episode, which was in the middle of February, and you were highlighting things that have come to pass, such as Micron at that time was surging, and you were talking about needing to be cautious based on how much upside was left there and what was going to happen. You're also talking about some semi-players offering some strong upside. You've continuously talked about AMD and Broadcom and NVIDIA.

9:49How would you update listeners, investors on those names in particular and those subsectors of the tech sector? I'm really happy to revisit those because a lot's happened. I know it's been a little over a month, but it's been definitely eventful, especially when it comes to memory. So we've had these memory players, Micron, even Storage Guys, Seagate, Western Digital, really go on a rally. right they've they've been the outperformers last quarter and this quarter as well and about two weeks ago now we had micron report and it was a stellar report you know by by all metrics they did extremely well and heading into that report the stock had broken its resistance it was trading in the 460s range and we've been bullish on micron just for some context here we've been bullish on micron since it was in the the high 60s range and so we've been bullish on micron we've expected this kind of super cycle to happen.

10:47But what we were signaling on our last podcast, and we've been signaling to investors in our investing group, Tech Contrarian, is that everything has a shelf life. And it's always important to remember that. So everything has a shelf life and Micron and Memory are no exception. So our concern for Micron was that for the quarter reported in December and for the print that we got two weeks ago, the upside that we're seeing, the financial outperformance, has been driven not by HBM, but instead by non-AI price uplift. So by non-AI basically trading at higher prices because of this shortage. So when the market woke up to the reality that AI is memory bound and that we're going to need a lot more memory than we have supply for at the moment, Samsung, SK Hynix, and Micron reallocated manufacturing capacity from non-AI into HBM.

11:39And so this caused a shortage on the non-AI front. And everyone knows where you have a shortage, you're going to have, you know, prices go up because the market, the supply is getting squeezed. And so we had prices surge for DRAM, for NAND, we had prices surge across the board. And for DRAM, it was specifically dramatic. We had prices surge for some kits over 300%. And what we saw with Micron's report is that non-HBM, specifically this past report, what it highlighted to confirm our thesis that this upside is coming from non-AI rather than AI, is that non-HBM gross margins were actually higher than HBM gross margins.

12:17And so we know that AI comes with higher ASP. So that doesn't make sense in essence, or at least it doesn't make sense to continue sustainably. So that was the data point that we needed to really confirm our thesis that Micron's outperformance, the company's well positioned, their business is great, but the outperformance that's driving this insane stock rally is tied to the non-AI. And on that front, it's a cycle and a cycle does have a shelf life. So we downgraded Micron post earnings two Tuesdays ago, and it's down something like 26 % cents. and our thesis really there is that they're going to lose that leverage on non-AI higher ASP and we're going to see DRM prices, spot prices and contract prices really moderate into the year's end and part of what ties into this is that on the non-AI front even heading into you know this AI rally on the non-AI front it's not like PC and smartphone TAM units have been you know expanding substantially so this isn't really a demand created shortage it's a supply created shortage And there's a huge difference between those two.

13:21Because if you don't have the demand, then when, you know, memory prices go up and we get warnings from guys like Dell or Lenovo or Asus, we're going to see demand contract because prices have gotten so high. We even heard about higher memory costs from, you know, the big guys like Apple. So demand is contracting. Smartphone and PC TAM for the year from IDC have actually been revised down in terms of outlook. I think it was last September when they first issued their smartphone TAM outlook for 2026. They were expecting 1.2 % growth. And then that outlook was revised down in December to a decline of 0.9%, citing the memory shortage.

14:03And then again, IDC cut numbers more dramatically, now expecting smartphone time to contract 12.9%, so by double digit percentage. And then the same thing is accurate on the PC front. You know, things aren't doing much better there as well. So the IDC's baseline outlook that was shared last November when it comes to PC was for a 2.4 % decline. And now that's been revised all the way down to 11.3 % decline as of March. And some of the industry players are actually pointing to even a steeper decline of 15 % for the year. So if we're seeing PC and smartphone contracts, and this is something that was confirmed by Micron's management on the earnings call two weeks ago, then that's all the more confirmation that this shortage is not going to drag out for too long.

14:55Because when a shortage happens, prices go up, everyone hoards memory because they want to get in at a good price. But eventually, if the demand doesn't come to take out that inventory, then the inventory just stockpiles. And when inventory stockpiles, you're going to, as a buyer, you're going to stop buying that memory. And so guys like Micron aren't going to benefit from that higher ASP on non-AI. And if I have a bunch of inventory, then I'm going to sell it to whatever demand is left, rather than stockpiling more and more for a market that isn't really showing robust demand, if you see what I mean.

15:25When stocks move as much as they have in the past few days, few weeks with the war, and as you mentioned on headline-driven news, how do you encourage subscribers and investors to take those movements, to strictly look at the long-term picture? So I think in a backdrop like this, and I'm going to circle back at the end of this just really quickly back to memory, just to address the turbo quant from Google, because I think it's played a big role in the sell off we've seen also since Micron earnings. But on that note in specific, I think with the volatility that we're seeing, I think we're seeing a very reactionary market.

16:03And it really goes back into that dynamic that we discussed earlier, which is that everyone wants to make sure to be positioned at the bottom in time for that relief rally. And this is really conditioning from last April and what we saw play out there. And so that's why we're seeing this kind of volatility. And from a fundamental standpoint, this kind of volatility trades divorced from the fundamentals. And so when it comes to this, this is when we think it's best time to take advantage of the pullback and build positions or add to positions in the stocks that have very strong fundamental basis.

16:34So, for example, Marvell is a stock that we turned bullish on earlier this quarter, and that's doing exceptionally well today with a stake from NVIDIA. And so on pullbacks like the ones we've been seeing over the past couple of weeks, that's the time to revisit the companies that are very well positioned, especially within tech, that are not trading on their fundamentals. Because sooner or later, the market will catch up to the fundamentals, especially once it's done from all the current distractions that are weighing it down. and so that's I think that's the best cure to FOMO and it's the best you know treatment for the current market and then I feel the need to address this because it's been such a big part of the memory conversation and I think that a lot of the time people get carried away with what TurboQuant really means for the memory space at least on the immediate front so you know we had we had Google's TurboQuant come out it's not in you know it's not entirely new in fact you know we had, they actually published an academic paper about this, I think it was last year.

17:35And then this year, they came out and they published a blog post about it. And that was really the marketing that it needed for it to get picked up by, you know, the market and by investors. And the impact that this blog post had is that essentially it crashed memory and storage tapes. And we saw this, you know, across the board last week, I crashed SanDisk, Micron, even storage guys like CK, Western Digital. And the reaction was somewhat dramatic, but it's not ill-founded. And essentially what the Google release implies is that there's a reduced use for, there's a reduced by six times, excuse me, there's a reduced use of memory for AI while carrying out LLM inferencing.

18:20So you need six times less memory if we were to put it briefly. We get into the nit-gritty of this from a fundamental perspective within the group, but just not to bore you with that now, the overall takeaway that the market got from this is that we actually don't need as much memory as we thought that we did. And while that makes sense in a picture-perfect world, the way that we're looking at this is not as revolutionary as much as it's evolutionary. So we're seeing AI evolve. We're still, we say this on and off again we're still in the very early cycles of a early innings of ai and you know the turbo quant is just further indicator of that there's more efficient and productive ways that we can use um memory uh and you know the the cv cache is memory usage has been one of the biggest bottlenecks uh when it comes to lm inferencing and so google is basically saying that they perhaps found a problem uh a solution to solve that problem and that that could really bring down the the cost of memory with the current shortage and really carry out much more productive AI models.

19:27That is true, but I think this is a stepping point going forward. So it's still something that needs to be built upon. So it's not an overnight kind of, I wouldn't say this is overnight why we are seeing DRAM spot prices come down. Instead, I think this is going to take longer to develop. And even once it's developed, then I don't think that is going to reduce the overall need for memory. Instead, I think it makes more sense to think about this as reallocating that memory supply that we now are building for to scale out AI at an even greater scale. You know, I don't want to get outside of tech, but there has been an overlap between energy and AI for quite some time.

20:05And energy is in the headlines for, you know, more oil-driven reasons these days. But what would you say about names slightly tangentially related or, you know, very tangentially related to the tech sector, but not quite in the tech sector. When it comes to kind of resolving the current bottleneck that we have on energy? Yes. And in general, how investors should think about peripheral parts of the tech sector. Yeah. I mean, great question. I think energy is on everyone's mind now because of the massive kind of requirements we're seeing on the AI front, but also because of the current situation playing out with Iran and the US.

20:46And I would say, you know, looking at energy through the lens of tech, through the lens of AI, I think the main thing that everyone should know is that the grid is really not built for the kind of energy requirements that we are looking at now or that we're trying to plan for going forward into 2027 and then into 2028. So there really is, I think that would be the most painful bottleneck that we have in the realm of AI today. We have a huge, you know we have huge ai factories being built out but we still don't have guarantees on the energy that's going to be able to kind of service these and so when it comes to that i think that's where the market is still trying to find its stable footing i think there are you know north of 500 planned data center projects totaling north of 120 gigawatts of capacity on the global pipeline and this is impacting you know retail electricity prices this is impacting data center's own power consumption this year and next year.

21:41So if we take a holistic look of where AI and energy requirements are headed, I think that's a major gap in the market now that everyone is actively trying to address. I think this is why we're seeing guys like Oklo, where Sam Altman had been on the board a couple years ago, really take off and be more center stage. But even names like that, which we actually downgraded, I think it was October of last year, even names like that are at higher risk because they're still not a tangible fundamental basis for the recycling of, for example, nuclear energy, right? So I think there's a lot more answers, questions than answers that we have on that front at the moment.

22:22And so the way we're looking at it is that it's going to be based on capacity needs and it's going to be for each individual tier one company. I think that's how we're going to see it segmentized at the end of the day, especially after Trump's State of Union address and kind of how he addressed the situation when it comes to the big players like Meta, like Microsoft, like Google, like Amazon needing to really take care of their own energy needs. Because once again, the grid was not built for this kind of situation in the Iran war and what's happening there only makes this kind of fear or, you know, this concern on that front worse.

22:54Speaking to the geopolitical factors and the supply chain of tech and all its permutations and various details that are involved with that, you know, when we're talking geopolitically, obviously this past month, it's mostly based around the Middle East and parts of Europe. but there's also the China conversation as it pertains to tech. There was, you know, the super micro conversation earlier this month. How are you thinking about, how are you continuing to think about, has anything changed about how you're thinking about that connection in tech? Well, I think the, you know, the super micro scandal was extremely interesting.

23:38It was, you know, I think it was the highest profile crackdown on AI chip smuggling that we've gotten to date. And this happened, you know, this didn't happen too long ago with everything happening. It feels like it's been a couple of weeks ago, but it was only on, I think, March 20th that everything really went down. And we had the DOJ unseal an indictment charging, you know, co-founder of Supermicro and others at the company for allegedly, legally, basically selling billion dollars worth of advanced NVIDIA chips to China. And I think the immediate reaction or the immediate takeaway that we got from that is that there is a widening gap between the U.S.

24:16and China that I think sometimes sell-side research or, you know, the news tries to hush down as if China is really catching up with Huawei and the domestic solutions in the Ascend series, as if they're very, you know, close to catching up to the U.S. I know that's something that Jensen says a lot when talking about the U.S.-China chip wars. And I think that, you know, China is executing well, they are working on achieving that self-sufficiency. But what the smuggling scandal really comes to remind us is that the gap is very wide. And with Vera Rubin coming out in Q3, it'll only widen further.

24:50And so the fact that we're seeing so much smuggling means there is that demand domestically in China. And the fact that NVIDIA is still not in that market, while AMD's chips, their MI308, have been sold in that market, I think reaffirms that this whole entire situation is more geopolitical. It has more to do with singling out Nvidia as the top AI GPU manufacturer, rather than kind of saying that no to all US tech in general, or saying that we have the technological capabilities that we wouldn't need to buy anything from the US because we're either seeing them buy from an AMD or we're seeing them be smuggled.

25:27And so that's the first takeaway. And it really loops into what our expectation was earlier this year, which is that one way or another, NVIDIA's advanced chips will make their way into China. And that exists in a gray area, so we didn't want to make any accusations or really expand on that more. But our sense was that one way or another, these chips will make their way there because there is a widening performance gap and China needs this to address their own domestic capabilities. And so the situation with Supermicro only really reaffirmed that. And I think from here, we have two things that will happen simultaneously.

26:00I think we'll see more harsh export restrictions from the US, from the DOJ specifically, after such a huge scandal was uncovered and it was happening at such a big scale. And at the same time, I think that we'll see movement on the conversation between Trump and China. And, you know, wrapping this into the broader geopolitical tensions happening at the moment, part of why I think that we should see a resolution to the situation in the Middle East sooner rather than later is because Trump has rebooked and scheduled his visit to China several times. And it was kind of implied at the beginning of the conflict that he would want to be visiting China once the war had been resolved.

26:41And so the fact that we've seen him stick to the date after pushing the visit, stick to the date of, I think it's mid-May, the 14th to the 16th, around those dates, kind of reaffirms that we should see a resolution before then. And I think once we get that meeting, I'm also expecting that we're going to get updates on the chip war front and the situation there, especially that the Iran war has brought up a conversation of will China invade Taiwan, which has been this on and off going conversation really around TSMC as, you know, the golden shield for the island. And so with that, I think we could see NVIDIA move into the region once again.

27:18But I think that'll that is something that's outside of Jensen's control very visibly now. And I think it has a lot more to do with the conversation between Trump and Xi that will happen in May. And especially with Vera Rubin coming in the second half of the year, once again, the specs on Vera Rubin, I think, will only very dramatically widen that performance gap. So perhaps we see a new package offered from the U.S. towards China where it comes to selling less advanced chips to get the ball moving there since there's already smuggling happening. And I think Trump is a businessman first and foremost.