Why investors should consider these 'specialized' tech stocks

00:00 Julie

When you’re talking about silver prices going up, we know memory chip prices have been going up, costs have been going up for the data center build out. So, how do you think about that in the context of your ownership of tech stocks and your strategy around tech stocks?

00:18 Christian

Yeah, so investors have to be more selective about where they go in that value chain. Okay.

00:25 Christian

Now, the thing is we just had earnings, right? So we have the CAPEX projections from say the large hyperscalers, like if you look at Microsoft, Google, Amazon, Meta, they’re going to spend 460 billion in 2026.

00:36 Christian

So for investors, there’s all these pockets of value and you really want to focus on the inputs into the data center buildout where firms have moats and a lot of pricing power. So memory is a really interesting one. So OpenAI secured 40% of the global DRAM mark- market in October.

00:54 Christian

And if you look at data centers, they use a certain type of memory. It’s called high bandwidth memory, HBM. There’s only three companies in the world that can produce it at scale. One is in the US, it’s called Micron. The other two are in Korea,

01:07 Christian

SK Hynix and Samsung. And if we look at the Kospi, last year it was up 90%. It’s selling off today, but it’s up 25% again this year. And what’s interesting about that is they have an enormous amount of pricing power. So memory prices are going up on the order of 50 to 100% every single month because the demand is insatiable.

01:24 Christian

And there’s a lot of spillover effects related to that. So consumer electronics, we saw it on the Apple earnings call. There were questions around the cost of manufacturing the iPhone and concerns about their ability to secure memory. So there’s all these sort of spillover effects tied to the AI narrative and this data center buildout. But if investors can find these firms that have that pricing power and they’re a core input uh into the investment, uh there’s still a lot of uh value fundamentally in those companies.

01:47 Julie

Well, and it’s really interesting you say that because it’s not as though this Micron situation is a secret. The stock has already soared, right? And you’re seeing the hard disk drive makers that are also adjacent to the memory business, SanDisk, Western Digital, etc. All of them are at or near records, but there’s still room to go up.

02:03 Christian

Yeah, so the what’s interesting about that is they’re uh re-rating their earnings so quickly that the forward multiples are coming down. So we’re in this memory super cycle effectively and I I don’t see that changing in the foreseeable future.

02:16 Christian

This AI build out will happen. It’s the largest uh investment, industrial investment cycle in the United States since World War II, right? And a significant contributor to GDP as well.

02:25 Julie

Are there other places besides the memory, are there other sort of emergent places that you think investors should be looking that are tied to that sort of picks and shovels of AI?

02:34 Christian

Yeah, it’s the picks and shovel. That’s a great way to uh to describe it. You really want to focus on these inputs that are specialized and there’s just a massive backlog in terms of order books. So another one is transformers.

02:44 Julie

Mmm.

02:44 Christian

Just to power the data centers. It turns out that a lot of European companies like ABB, companies like that are very specialized uh in the manufacturer of uh these types of inputs. And again there, that’s like another pocket of value potentially where they have a lot of pricing power and they can pass that through. And again, the CAPEX is just going up and up and up. There’s this big push on this technology, the spending is going to happen.

03:07 Julie

Christian, really interesting stuff. Thanks for coming in. It’s good to see you. Appreciate it.

03:11 Christian

Thank you, Julie. It’s great to see you.