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Hello and welcome to another episode of the Odd Lots Podcast.
I'm Joll Wisenthal and I'm Tracy Alloway.
Tercy, you know what I'm worried about. I don't know if I'm worried about it, but it kind of feels like the direction things are going, which is that like all energy, industrial commodities, anything that we use for any purpose is just going to like feed the AI beast and us humans We're just gonna get left out in the cold. They're like nothing for you. We gotta like feed, We gotta feed it all to the AI. And and maybe in ten or twenty or fifty years, the AI
is it's so powerful. They just decide, why why do humans get any of this? We just thought we should keep it all to ourselves.
A legitimate concern, I would say, I mean, to some extent, we are already seeing this crowding out effect. Right, So energy prices in certain areas have been going up, and most recently memory chip prices. So this has been all over earnings. Recently. You had companies like Apple saying that because of a crunch in memory chip supply, they might have to either raise their prices or like cut down
on the amount of phones they use. Nintendo, Like, if you pull up a chart of Nintendo shares right now, they are just getting hammered, and supposedly it is all because of this memory chip shortage. By the way, do you remember do you remember like buying your first PC in like you bought one before I did, I think, But mine was in the mid nineties, ye, I think, I go. Do you remember how much memory those things had?
Oh?
Like nothing?
Yeah, Like I looked it up, something like less than ten megabytes for a bunch of them. You know how much PCs have nowadays?
Actually, I have no idea.
I think it's let's see sixteen gig by Yeah, isn't that crazy?
It is?
It is really crazy. I remember, like, do you remember zip drives? Yeah, oh my god, or like, and there were all these special you know, obviously various memory peripherals that you could buy and they came in sort of dedicated cartridges and stuff like that. I think they're called zip drive. Yeah, I think right, there was zip drive. I don't remember. Yeah, yeah it was. Yeah, that's wrying, additional memory storage, etcetera. It used to be this big
part of the consumer process. I'm actually glad. You know, my son really wants a Nintendo. But if they can't produce them anymore because they can't get the memory, then I say, sorry, no video games.
That's so mean. You're gonna have to sit them down and be like, I'm so sorry, son. There's this thing called the supply shortage. I'm going to use this as a learning opportunity to explain how global supply chains actually work.
Totally, you know what. The other the one interesting thing is if you look at spot dram prices, which we have on the terminal, this is I think maybe the interesting dynamic. There's a lot of AI related things on the terminal that have been surging for several years, most notably some of the big chip companies and video et cetera. If you look at a chart of Spot dram prices, the big surge wasn't until late last year, and then
since then it's gone nuts. So for a long time, even as this AI story, the AI meme, the AI industry like propagated, people were really paying attention to that area and then suddenly it's just gone like you know, the haywire. Yeah, and so obviously huge supply demand and balances. We need to understand what's going on because I think the stakes are you know, it's getting so much. As you mentioned, a lot of companies are losing out pretty big.
Others are making a lot of money. Yeah, we started need to get a handle on what's going on with the memory.
Let's do it.
I'm really excited to say we really do have the perfect guest. We're going to be speaking with Ray Wong. He's an analyst at Semi Analysis, and he's recently published a brand new report on exactly this topic, talk about a memory super cycle and so forth. So truly the perfect guest. As I mentioned, he's comes to us from Korea. Ray, thank you so much for coming on odlots.
Nice to me in Bove and thanksful having me so many questions.
Really appreciate you joining us. Let's just start with the basics, like what is it about AI or what is going on? What is the core idea such that demand for memory in various forms is absolutely seem to be booming right now in a way that must have caught the supply side of the equation very off guard.
Yeah, I think you know, to really do get kind
of the some of imbalanced supply TMO dynamics. Really we wanted to get like you know what happened a few years ago, right, because you know your capacity to check, like your investment few years ago, and what's happening you know, like in twenty twenty twenty four, it's it's sort of a down cycle, right because remember doing the COVID, all the companies so try to flug in to buy tons of DRAM, right, and you know there's a lot of purchases there, right, and there's sort of like upcycle, right,
but it's like a very very short up cycle because like when the COVID gradually getting better, right, you actually don't need that much DRAM And back then the company will be like, hey, you actually don't have a sustainable right, So they don't want to over invest to expand their capacity. And when you go into the down cycle, your capet typically be Americans trained Meri like, you know company from
their perspective, they try to be conservative. So that leads to twenty twenty four and twenty five that you're incremental waver for capacity that goes So DRAM is actually quite limited. But what's happening on the demand and it's absolutely the demand was asserrating so fast, right, you know, it's you know, one way to look at it is to look at a media's earnings, right, and if you when you when
you're on one side, your demand asserting so fast. On the other hand, on the supply side, your supply just couldn't catch up. And there's more nuances behind the supply, right because before they are just supplying all the commodity DRM like DDR LPDDR, right, the all the memory that goes to PCs, goes to laptops, goes to your mobiles, goes to Nintendo switches. Right. But you know what's happening, you know, in this AI, it's like there's a new
thing called SBN. The think about. It's like a special memory for directly for airs arter and that memory is extremely drent wayfar intensive to give you a sense, right, you know, on the same way, for a basis, you can produce three more bits if you do commodity DRM, but you can only produce one bit of HBM, right, and that ratio will actually going higher when you go to HPM four HBM five in the next few years. Right.
So in that way, on the same way, for basis you can you can only produce that much HBM, and right now what's happening is like, hey, this HPN is super super profitable, and why not we that? Okay, more wafare for HBM. But so here's the problem, right, you only have that much wafer and you need to try to do everything. So that's funding out a lot of the supply going to the commodity dram. Right, so we
have we have sort of both things. That's happening and essentially comes down to like I think, really, you know, things start really kind of people are wearer. It's like probably Q two T twenty five that people realize, hey, like you know, we actually couldn't find enough like enough DURAN, enough commodity d REM and also HPN for their demand.
So you mentioned the sea word just then oh wait, not that seaword commodities.
You mentioned commodities.
And when I'm reading these articles about a memory chip shortage, people use commodity type language. Right, So you hear super cycle a lot, you hear commoditized chips versus I don't know other types of chips. Are they customized? I don't think so. But anyway, how much does this particular industry actually resemble a commodities like industry, and then maybe explain a little bit more why historically it has been really really cyclical.
Yeah, so I think a couple of reasons.
Right.
You know, Fundamentally, the sort of the cost of bits for DRM was actually coming down every single year significantly, right, even you know in most recent years was also coming down. But like the extent that they are coming down for every single year is actually slowing down, like you know, over the past like ten twenty years. Right, So the cause was key going down, right, So because it's hard to become of like you know, the most competitive part. Right.
Another thing is there's the nest of the committee that let's set up the standard for d REM right. So, well, you're doing the similar products, right, you're just having you know, oh this is kind of a little better power efficiency, the performance was a little better right here and there. So like it's hard for you know, a memory supplier to significantly differentiate their products compared to their competitor. Right, So essentially, what's the what's the things that will compete
in M will be in the market prices? Right, And then if you are selling the similar products and you are talking in similar audience. Right, that's sort of like other commodity you know, sort of semic adopt the commodity products to me, and I think those are the two man characteristics I'm saying for DRAM, and I think that's a little a little different for HBM.
Tell me explain this. So there's commodity d RAM and then there's HBM. What HBM is a type of d RAM? Is that what you're saying? Yes, can you explain this further and like sort of yeah, walk us through what the commodity version and why there is this thing called HBM High bandwidth memory what that's all about.
Yeah, Yeah, So essentially the emergence of HPN is really go down to the kind of model layer, because you know, this is when you like try to scale and stary scaling your AM model. Right, your thoughts, your followsing increasing significantly every single year, right, because your compute was increased lat faster, but your memory bandwidth was actually sort of it's increasing, but it's very limited, especially if you are using the memory from kind of traditional commodity dan that
the bandwidth is actually mare limited. So from a memory supply, they're thinking, hey, like how can we expand the bandwidth to supporting the memory. They're going to scale the AI, right, so let's consoles HBM, so the way they do hBN.
It's so they are stacking multiply eight were told for even in the future sixteen DR and dies together, right, So that making you you have like essentially having higher bandwidth and have enough capacity to support AI developments over the past few years and in the next few years. And let's very different, right, you are stacking all this dies together compared to a Hey, I would just we just have like one DRM products as a chip.
Right.
And also that also comes down to the point that HP and manufacturing also the packaging, both front end and back in there's a lot more complex compared to commodity d REM. And that's why I say commodity DRM is more like commoditize, but I think HP is less so because it's lumbo complex, right. And for supplier you can actually differentiate either from the front end or back end technology.
And when you you know it's better, right, it gives you a better margin, better ability to compare compete with your competitor. Right, you know, stuff like thermal things like that is the thing that will really stand out right, and let's marry different commodity.
D rem getting more and more layers on HBM. It kind of reminds me of the Razor Wars, where like, you know, Gillett would unveil a three blade thing and then the next day someone has like twelve or whatever. So if I'm a company like Nintendo, how am I actually purchasing chips? Because I think this is going to be important when we talk about what's going on right now. But do I have like a forward contract with a major supplier, or do I have I don't know, a
warehouse full of chips that I bought previously. How do they actually manage that?
So there's a couple of ways they do it, right. They will they will do it in in terms of like kind of they will do a different way like different environments and also different vendors, right, So it's hard to say like, hey, this is exactly exactly the way
they do it. But typically I think you can think about like, hey, this is amount of the chips we're gonna purchase in the next four months, and this is a month we're going to commit, right, and we're gonna sign a counter partly saying whether this term will be four months or for the LTA, you can go to like as long as like to a year or even two years. Right, So let's see the people the way you think about it. But people you will be like, hey, we signed this country for four months, right and by
the end, sorry for three months for a quarter. So by the end of the quarter, you negotiate a new country pricing for the next quarter. So that's typically the way it works. But you know the problem for right now is for consumer and toronic, it's like the pricing prob is sort of I would say secondary, because if you couldn't secure value, you couldn't even make any money, right, So number one is secure in value, whether that you know, make sure that fits to the demand all look, you
are same two. It's whether you can negotia the best pricing you can. But given the overall pricing environment was slow, volatile, was so ascanting so much, it's hard to like not taking some kinds of marching impacts because essentially, you know, you try to get the chips right and you cannot just you know, get too much away from your vendors.
Yeah, I want to get more into the demand destruction because I think This is very important to think about where the e globrium is going, just to clarify what is it about AI specifically? Is it in the training, is it in the inference? Where specifically in the process of building out AI services does this voracious demand for DRAM come from?
So honestly, is to be up, very honest, I think is everywhere, Like, right, you know AI training you need to council HPM. That's just everyone, no, right, you also need a lot of the CPU d RM and that's LP d d R and a DDR that going to the server. You also need HPN, right, So let's on
a training part. In an inferencing you also need HPM, right, and you also need the CPU DR and the ghost loss vocal right, But you know the main one will be the HPM and even the inferencing right right now they are separating to pre fill and dec and you know, I think eighty percent I think right now, like the most important thing will be to code, right, and the CO is super super like memory bound and memory intensive and HPN and memory importance of their will just will
only increase to my understanding, especially given the long contest window continue to expand and the inference usage. You know, douctions continue to going up, right, So I think those are typical way I will think about those, right. And the last thing is I think a lot of people talk about these dates is about argentic AI, right, agentic AI. You want to power those? You need a lot of CPU. You're not a lot of CPU based server, right, So
what's what's including in the CPU server? There's a lot of d R in there, right, and a lot of urgentic world law also mean you need a lot of inference as well, right, And then go back to my previous point, you need a lot of XP and d REN. Right, So I would say like kind of d RN and I get HP and d R and kind of everywhere, and we have to talk about storage bout storage or so everywhere. You know, in doing this process.
I have a basic question, but why does AI need a lot of memory at all? So you just explained, you know, it's important for inference, it's important for training whatever, but like why Yeah, I think.
I think this this needs to like goes down to the to the model later, right, because essentially when you try to train, uh, let's say you want to train the model, right, and then you need. You just need the pure tons of data. You need to write tons of data there to train your model. And then for the influencing partline, you need one data after another to kind of compute one after another, sort of the chain
of salts. Right, yeah, So to to do that process, how can you keep the previous data on your process to keep it in there and the process to another data that's coming out after right, So that's why you need not of memory and go back to my previous point. Right. The colon context window basically means like when you're when the things that your process is longer and longer, right, like, how can you how can you have enough memory to
process those? Right? And you know, one for a good example, if you use TGBT, you guys definitely remember right, you know back togbts, which starts coming out people just like hey, like what's the weather?
Right?
Like marriage poems people right now? Is or nastier people are doing like hey, can you write a twenty page of poor? How canser it can happen on people?
Right?
For example? Then will give twenty page of poor and they were wait like five minutes, right, And so if you think about the process like they do all the calculation, all the researches, and also give you the output tokens that the answer you get from your prompts, that's significant, way longer than the proms that you are given, right, And that's also a lot longer response that you are
getting when you call back to the GPD three. And remember the usage we know back to GPD three was it was the U kind of the monthly daily users, but right now it was I think the user for GGPT was eight hundred million, right, and we are not included the users for the Germini, for clud for XAI. Right, So you think you multiply those effects. I think the memory they management significant and it's very clear to me.
Yeah, it's really interesting. I saw someone people were talking about this, but it really strikes me in my own usage of AI just basically how much more use it as capabilities have grown. Like it was sort of cute in late twenty twenty two. It's like, oh, get it to write a poem about this, and it's like okay. Then I would go, you know, several weeks sometimes without having anything to query, and then you know, these days like I'm using it all the time, like trying to
do things with code or scrape data, et cetera. So overall token consumption has grown massively with increased capabilities. All right, let's talk about the demand destruction element. Any commodity is going to be the price is going to be a function of supply and demand, and eventually prices get high enough such that certain forms of demand just are no longer economical. And it's like, you know what, We're just not going to make as many video games or cameras
or whatever else uses a memory. Are we starting to see any of that yet such that certain uses and consumption of memories.
Joe doesn't have to buy switch for his son, Yeah, that's right.
Yeah, I actually both have switched RAC So the price you should resell it?
Are you going to resell it?
I don't know. We'll see it up hol the opts rocks there works. But yeah, I think I think we're already seeing a lot of impacts. Actually, but kind of you kind of vary in different types of products, right right in p you are showing seeing that thell non noble answer sous. They are all having a price tip for kind of different their problems, right, and you know, on the kind of demand side. You're also seeing that.
I think for the Chinese small phone market. Right, a lot of the analysts, a lot of the research firm, right, a lot of the company was saying, like they are cutting off their small phone outook a full example. I think media attacked recently left for Arniest. Right, they're saying they're cutting off the mobile to I think it was twelve for ten to fifteen percent of the twenty twenty six outlook. That's mere significant.
Right.
You're saying this year is supposed to be a hundred million, but you will essentially go to a nineteen million. Right, that's mere significant. So I think we are already seeing that, but you kind of vary different places. Right. Apple will be a great example here because they're saying, hey, like, hey, we have all the price TI like, right, but we
actually managed to put it well. Uh, they are saying the real sort of for marketing impact will actually show up in the second half twenty twenty six instead of like the first quarter or second quarter. I think those of at of the things I'm seeing, So it's definitely already showing out in the market. Right. I think what you can expect this sphere will be two things one is sort of demand destruction in PCs right, the border consumer and astronics or the dispect whether it's the memory
displce Le's merri straightforward. But also the camera right, the camera is also very important. I'm hearing in some of the display on the camera as well. And you know also on the sort of what we call it delayed launch, right because you don't want to launch your new products that have higher price than initially stalled, which will impact your new launch performance. Who's usually the new new lunch product have better asp, better margin compared to your previous generation products.
Right.
I think those other things we're going to say in the coming months, in the coming quarters, I think will show impacts and people will start feeling it.
Joe, do you think we're going to get people like stripping all newtendos for memory hips? Like remember how during the commodity super cycle in like the early twenty tens. I guess there are all those stories about people like stealing electricity wires going to get.
Twenty twenty one. Yeah, I think, yeah, we might. We might get some of that.
Well.
Actually, on that note, is there like a short term fix for this problem either in terms of design, maybe you can make the products more efficient in some ways so that it needs less memory or recycling old memory chips.
I don't know, yeah, I think you know from the dement side, it's a lot difficult, right from an in perspective, right, there's only that much you can do, right. You can dispect, right, but I don't think that addresses to the fundamental issues. Right, you are just dispect your products and so you can ship.
But that there are this double age word right when you downgade your products that actually look back compared to some of your peers who doesn't dispect right, and Mengro product less competitive that impact your final sort of the totally or annual shipment. I think what's need to be address where what can be done is probably on the supply side, right, So supply side we mainly talk about a couple of vendors right, the micro and high in
eight Samson and for legacy ones. Right you have windbound and China like CSMT and JHIICC right most people, So I think the most right way right now this year because this year the really challenges there's a clean room constraint. So clean room country is basically you have limited space that you can put those increments and start marifaction chips in the vat right, so you have clean room shortage
in all three major memory makers. Right, so your incremental waver capacity coming online for twenty twenty six will actually be quite limited. So in that sense, how can you produce more bits, more different bits while having only limited incremental waver capacity. The only thing you can do it is non migration. So in deer processes, now you have the most advances right now it's one C right, going down,
have one B, one A and one X ball. But right know, I think why now they are trying to do its migra as much as they can to one B and one C, which on the same way for basis you have produced a lot more chip, a lot more bits of compared to the legacy not right, so do doing that way on the same wave for pass you can produce more bits. So that should produce more supply even though your wave capacities constrained. But the challenge is two things. One how fast you can m about
this non migration? Right? No migration is typically difficult. Well I always say difficult is you know it takes time right for to go into the most events now, right, you need EUV machine, right, you need all different kinds of manufaction processes, right, and not every fact can already prepare to doing that, right, so it will take time to m about all those productions for the new events not Also you are having the challenge to like, hey, okay, I want to do that migration, right, But how we're
going to balance the capacity with HPN Again, that's another issue. You want to kind of think about it, right, because some of the HPN processed not uh it's actually using for hidings, are using one BEE so that's actually the events processing all right, So even you're including one bee by Edison, I want to do more ESPN, So like that increase years actually quite limited. So I think also
the way it can potentially fix the issue. But you know, from our house view, right, even we factor all those in, I think this year we're still going to have ce press significant shortage.
One of the themes that comes up when we talk about any commodities supercycle is that sure, higher prices will eventually elicit more production more supply, but in the meantime, you know, there's a sweet spot for the existing producers, especially when you have just a small number of producers that can produce at scale, they enjoy massive profits, right, and they're sort of going to be reluctant to build out new fabs because that's money going out the door.
It also means lower prices, So there's always this sort of goldilocks period for them before the supply comes online where there's just raking in profits. What do we see is the industries in paul to invest And I'm curious, like you know, whether it's Chinese producers. Are they in a position to potentially undercut the profits of the Korean makers? Are the Korean makers seeing themselves as having a long window where they can enjoy large profits before they have
to invest? Like what is the thinking on the supply side about those big capital outlets?
Yeah, and that's a very good like strategic question. And I think you know, every management or public give you so no different answer or and kind of on the high level, probably same by the in general, right, Like you know, you know, look at like historical cycle. It's like, you know, if we are seeing quite sustainable demand in the next few years and then clearly the capacity couldn't catch on the demand, they are going to expand the
capacity in some time. Right, It's probably not going to be like hey were announcing twenty twenty six the topacit they do it currently online and meaningfully it's probably twenty twenty eight, so they will I think they will still announce, right, and we are seeing that from micro Right. Micron is announcing a new non fab in Singapore.
Right.
They are expanding they and they have two fabs currently it's on the construction in you right, also doing tons of a non migration and recently acquire the new fat from PSMC, which is a Taiwanese stream maker, and then all those movie You are already seeing some side of that and another side you are saying. It's the Capex, Right, both the Heene's, Samsung and Microne there during Capex is actually increased quite significant this year and expects similar train
in twenty twenty and seven. Given I think you know, they're gonna probably try to expand more capacity and invests more in both HPN as well as the equipments that go to events equipment. Right, that goes back to the point I was talking about the non migration. If you want non migration, you need to use more advanced equipment to produce more advanced chips.
Yeah, it really does remind me of the oil industry, right, where like there's a bust in the underlying commodity price and everyone starts talking about being disciplined, punkapex bend and so it takes a while to ramp up. I wanted to ask about, I guess the balance between HBM and other types of dram How are people or how are
the actual chip makers thinking about that? And is there is there a chance that because HBM my understanding is that it has higher profit margins, is there a chance that everyone just pours into HBM and kind of leaves the more basic stuff in the dust.
Yeah. So, actually, you know, it's very interesting. I think what probably things folk when you ruled about this for our institutional client, it's that, you know, not the margin. Well, typically we think hBN has higher margin, right, which is which is definitely true. But what's happening you know, we see all this like spot prize country price going out so much, right, the margin of the commodity d RN
right now is actually higher than hBN. So here that created a real dynamo that tracy that you talk about it because when your marginal command is actually going higher, why would you make more hBN? Like why?
Right?
But I think if you really think about like a long term perspective, form a memory supplier right before the old air bloom, your demand is really driving from couple a market right, PC, mobile, automotive, industrial, blah blah blah. Right, hBN right now is search as a new growth driver for the company, which we believe will last for the next few years.
Right.
And for the memory supported I'm thinking the same. And if you are now continue to push your capacity, push your technology. When you're lacking behind, it's hard to coming back. And they go back to my previous point that this is an area that's relatively easier to differentiate your products to get more market share more meaningfully. Right, So I think three memory makers are mermer value HPM even though
right now on the margin of commodity r is higher. Right, they will, I think they will still invest quite a lot on HPM, uh, and they will do their best to sort of balance the commodity dream market. But I think, you know, I think this year, at least the number I'm saying, it's still quiet significant.
Short, how do the Chinese producers compare to the Korean producers. Is there a Is there a gap?
Oh yeah, I think there's definitely the gap. I think, like you know, if you look at the memory in general, I think it's probably three years, say yeah, it's probably four years. I will say that this is merely like you know, time list that kind of today. You know, who knows about happen in the future. But I think, you know, there's definitely gap. You know, when I think about the competition pressure from Chinese memory makers, we always want to kind of separate the Chinese market and also
the x China market. Let's also the memory supply was looking at it, right, So Chinese market is probably about twenty five percent of the global deuring dement. So really the competition is happening in China because for the leading Chinese memory supplier like CSNT for example, I believe like or ninety five percent of revenue is coming from China and Hong Kong. So meaning you know, most of the DRA is really compaying Chinese market, competing with micro Hinings
and Samsung. I think I won't say that right now. On the events on the high end, right, I think it was still dominated by three memory makers, but CSMD getting to momento and why, and they are probably getting sort of law and mem products. And they are also benefited by Chinese Commons policy in terms of the self sufficiency drive to you know, whether it's for the commodity there. And also right now they're pushing for hBN developments that support Chinese AI harware.
So if there's a shortage, and it seems like the shortage is going to be with us for some time, how are the chip makers actually allocating what supply they have. Does it go to, you know, the company that I think is going to be really big and important in the future, like I don't know, an Open AI or something, or does it go to an existing customer that's been buying in volume from me for years?
Yeah, I think there's no doubt to me that you know, sounds the highest highest tier customer will get a value for sure. Of course there are the more complex pricing negotiation behind. But I will I will say, like the value would be still be the most important thing, and uh, I think that's probably what they gonna do, right And you know, besides thinking about like a buy customer, I
will think about kind of bisector. I will say the server durent and HPN two things together will be the top, top priority because you know, if for the whole a marketing deal we are seeing actually HPN and Server duren together, it's probably like more it's more than half of the durrent market, right, and that's important, and it's going so fast, right, and it's unlike the mobile, right, mobile is kind of flat.
The mobile demand is really driven by the increased different contents in the mobile, which is Crian Dimater right, if you buy iPhone over the past, you know, like they are actually crane demating on their deferent content increase. So I think, I think, you know, loads are the top two parody for the memory company to focus on in the next two two years. And we'll see what happened, you know, after like second half of twenty twenty seven
or twenty twenty if there is some structural change. But I think Server Durent HPM will be the top parties.
You know, the other day, I was very lazy, it was not just one day, and I used claud code. You know, I have a bunch of screenshots on the desktop of my computer and it sort of makes my desktop look like a mass and I can't see folders, so I like drag and drop them and put them in the recycling then and it was very lazy, and I put it to claud Code. I said, clean up my desktop. Clean up my desktop. And I was like,
this is so insane. I'm using you know, anthropics computers wherever they are on the other side of the country to clean up my own computer's desktop. Why do I even have my own A good job, of course, yeah, it did great, And I was like, why do I even have my own computer? At this point I started wondering, you know, I'm like, use, what why do I even have a computer? Could it so related to this sort
of dram question. Could we just get into a situation in which people don't really have their own compute on their own device, because more that, like anthropics, brain is sort of or open the eyes, brain is sort of controlling the things we use. Why not just have a very low spec computer or low spec phone or whatever, or you know, low memory whatever, because I'm already using
their computers, et cetera. And are we just going to see whether memory or elsewhere the sort of migration or all of the interesting stuff and all of the memory and all of the compute happens elsewhere and my phone just becomes a sort of you know, or my computer just becomes a screen with an Internet access.
Yeah, I mean I do. I don't know of all the idea, like you know, not having the personal devices.
Yeah, I might like have a physical device, but it just sort of seems similar, like over time, does it make sense for me to have all of this actual compute inside my house when I'm just like I might as well let them have it all.
Yeah, I will say it depends on what's your purpose y you know, for example, laptop for example, right, Like, if you're doing like media editing merment heavy, right, you probably still a loft. You probably still need quite a lofty DRN right. If you're just you know, doing like you know, document work right talk cold depends on how
are you going to use it. If I'm using like super intensively, I think you still need a quite good DRENT, especially you're like pulling all different API from different places, right. So I will say it just really depends on the m purpose. I don't think like you know, at least at least I haven't seen like you know, there will be like kind of structural uh sort of theorem destruction in the devices from five genting AI.
So, going back to the beginning of this conversation and the cyclicality of the industry, people have been throwing around the term super cycle again very commodities ask is this just a super cycle, you know, maybe bigger than a previous turns that we've seen throughout history, or do you think something structural has shifted here? Perhaps given and the rise of AI and the fact that Joe is you know, using Claude to clean up his desktop, this.
Is an actually very dangerous question to real You are basically asking, right, whether this time is different?
Right?
Right?
I think, like, you know, I think there's a couple of things that it actually runs with the history, right, the non migration, fair capacity, right, those things. But I was like, you know, there's some kind of difference I'm seeing, right, because we really see in a sort of supercycle, that there's a new demand driver coming online. It's not only constrain the demand, this thing is also constrained to supply, right, because we know, for example, in twenty twenty ten to
twenty twelve, there's a supercycle driven by mobile. Right. So mobile is basically, hey, we have a new part of coming online and it require a lot of DRA and let's let's and our capacity couldn't catch up. But right now for h men, and it's like, hey, okay, we need to do HPN, but your SHPN is actually constraining
your commodity de ran capacity. So I think this is the key difference that we are saying for this, right, and apparently the demand accelerations it's also last quite long, right, if you really starting counting the sort of I would say the air acceleration in terms of demand probably let's say second half of twenty twenty straight when a VIDIA
really start kind of emerging in people's attention. Let's to now it's almost probably like let's say three years, right, two year a half, two three years, and we are looking at this cycle to last until let's say safely to say like second half of twenty seven, right, So we are looking at like kind of four year cycle that's quite rare in the history. The usually like the cycle if you look at historically for the memory is probably like fifteen months, like the probably longest like eighteen
months from start to its peak. But right now we are going to an area that was like, hey, the demand was going up, not a price directly. But the demand at least was growing quite significantly over the past few years, right, and the pricing impact is happening right now starting from probably Q two twenty twenty five.
Well, what is it when you say, okay, the cycle could end by twenty twenty seven or the second half of twenty twenty seven, what are the ingredients for it to slow down? Is it the more production capacity? Is it a slow down in act total demand? Like what what do you see potentially happening in twenty twenty seven that brings applying demand more into balance?
Yeah, so I will say that it will end. I will say, like, it's a more tricky area to because you know, based on the number you know I'm modeling, we are seeing here the demand is actually going higher and the shortage is actually going to worse. And the power of that is because a media ad server, their dealer in contents is going to three acts compared to Gregwell, right, and the video server lubin two hundred. Yeah, okay, I'm sorry, looping out, Sorry looping out our looping three hundred okay?
And if that's okay, and the demand will continue to be that strong, right, you're actually being shortage to even be worse compared to twenty six, and your dealer should go to the go worse, right because the Murmer record is gonna try to make more HPN waifer right, and that kind of conting out more on commodity dram. I think the reason I say it's more tricky because two
things I mentioned about a lot of migration. It's actually happened this year, It's also going to happen in twenty ninety seven, right, So towns of la migration are going to come in online and being completed, so then will add a lot of additional bits for the memory supplier. Additionally, the wafer should have a lot more coming online by the end of twenty six and for you know, throughout
twenty ninety seven. Right. So I think those are two variables that you want to factor it in from what I'm saying, at least I think like twenty twenty seven therein going to still be storateaged.
Yeah, we need a strategic memory to preserve put a floor on prices in the cycle. Actually, on that note, do you see a lot of stockpiling in the market or panic buying right now where people are seeing these forecasts and they're freaking out and just buying whatever they can.
How you get a ball whip perfect, that's right.
Yeah, it's hard to say no, right, Like one of the good I think the signal you've seen a tiny sampsone and microt during an inventory was dropping every single
quarter see setting Q Street twenty twenty five. And that's that's one of the things that you are not just you know, buying the sort of products on the shelf, right, and the products are coming online in that quarter, You're also buying the products that in their inventory, right, You'll try to get as much of the product as you can, and you know, and you know, given the older demands and how AI has developed so fast, like by month monthly basis, it's hard to say, like, hey, there's no
pre entitive purchasing behavior happening, right, And especially when the hyperskillers and the leading labs, they are competing each with each other very intensively. Securing capacity on the hardware is sort of the baseline, right. You want to get the best equipment that you can compete, right.
So obviously if I'm buying a Nintendo Switch, if I'm buying a PC or maybe some sort of consumer device, then the increased memory cost is a meaningful driver of that. And maybe you know, the company you have to raise prices, maybe I won't buy it or whatever, and you might
get this. What about like for the big hyperscalers, when we see these huge capital expenditure numbers from the likes of a Microsoft or an Amazon, do these prices changes move the dial at these levels in terms of do they affect anything when we're talking about these buyers.
Yeah, I don't think you know number one, for sure, I think the tapex is not really well, the tapex increases not because of the dealerent price increase, Sure, deer price increase does gonna have some kinds of impacts to their purchases of memory, right, assuming the hyperscialers are a direct buyer of the memory, which you know is not necessarily the case in a different locations. Right, So if
they assumeing they're the direct buyers of your memory for sure? Right, if you know, if your initial call was using a hundred million to buyas set amount of memory, right now, probably you need to do some this calendar for sure, especially this thing that's probably gonna that there's going to be more and more in the coming quarter, right, So one of the things that I'll try it, and they are hopefully they are trying to do, but they it's
still very difficult. It's like they try to have a long term agreement, right to commit large value for the year basis and to hopefully to have bene pricing, but it's really hard to you know, to achieve that because why the memory supply. I want to do that, right, we can you know, ne negotiat of pricing in a coding basis. We can actually get more money, right, and especially given the current pricing and supply demand environments.
Wong, thank you so much for coming on Odd Lives. Really the perfect guest. Let's us stay in touch and maybe we'll revisit it in twenty twenty seven to see if things have eased.
Yeah, hopefully all right, Thanks than care, take care of it.
That was great, Take care, Thank you, Tracy.
That was fun. I do feel like there's a lot of moving pieces there, but just from AI in general, the crowding out effect is such a big part of the story. When when you saw those big capital expenditure plans for twenty twenty seven, like these are real macro drivers. They're going to show up at CPI, et cetera like that, and because it's like, you know, maybe we'll get a lot of productivity gains in the future, but right now that pace of spending is so furious. It is like
a fiscal boom. Yeah, I meant stimulus.
This is what happens when some of the world's biggest companies and most cash rich companies decide that this is an existential threat. Right there's no upward limit on how much they're willing to spend in order to survive, and so you could just throw money at HBM chips, I guess, and then you get the chip makers going well, actually, like we want to produce a bunch of HBM like forget about track all that stuff.
I do think like, yeah, you know, when it comes to some of the data center and energy stuff, it's a little ambiguous how much it's affecting energy prices right now, but already the politics of that, yeah, very fraud. And then you're going to start upsetting the gamer community because they can't get act. You know, Nvidia has talked about critiquing mistake, and then they're going to upset my son
because he can't get a Nintendo switch et cetera. People are just going to start feeling it more and more, the sort of visceral reality that various resources that they thought they could get abundantly. It's like, nope, we've switched this line over to the data centers, over to AI, and it's going to become more This crowding out effect is going to become more and more real to people directly, which.
Is so ironic because when you think about AI, you know, it's this thing that exists in the ether, right, but at the same time it has this huge physical impact in the real world. It's kind of funny, and I guess, like, not what a lot of people would have expected.
No, I suppose not the DRAM people. If anyone who has a terminal or just should just look up DRAM prices, because this is.
I thought you were going to say, anyone who has a terminal should start stripping out.
Terminal, should just unscrew the back and pull out the DRAM. No, but if you had people should just look at the chart, because really, here's this thing that's very sleepy. I mean, this was true commoditized to you know, this was the low end in terms of what people were excited about in chips and so forth, and it is great mentioned in the beginning, you know, costs generally around this downward trend and so forth, because growth was modest and technology
continues to improve. And then it literally just looks like an l really in like the last four months, just gone completely nuts. And so yeah, kind of a fascinating spot to watch it. And it's just interesting to the point that you were making how much it really is like a commodity supercycle. Yeah, commodity cycle.
Well, I guess in twenty twenty seven, maybe we'll find out.
We'll see if it balances out.
Shall we leave it there?
Let's leave it there?
All right? This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
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