Micron just passed Meta in market cap for the first time and that’s worth highlighting for a couple reasons.
The main one is that Meta is a huge buyer of memory chips from Micron and its competitors. This isn’t looking like a win-win. Micron is absolutely gouging Meta and others on pricing as it sells the exact same thing it sold last year but for 4x the price.
There’s nothing wrong with that but Meta is one of the buyers and suddenly, the market doesn’t like all the spending it’s doing. Shares of Meta are down 2.6% today and threatening the Hormuz lows. Shares are down 18% this year and 31% since August. That month is perhaps not coincidentally the month that Micron took off.
The clear implication here is that all of Meta’s free cash flow is being deposited into Micron’s accounts. If you’re Mark Zuckerberg, do you want that to continue?
Now Meta has its own series of problems as some brutal articles are trickling out about the broken culture at the company after executives started discarding employees and treating them poorly but the market generally moves on short-term earnings and right now Meta is headed in the wrong direction as it battles — hopelessly — to win the AI war.
We’ve seen this before from Zuckerberg with the Metaverse. For years he poured money into the hopeless project that ultimately turned into a joke. It got ugly and Jim Cramer was crying on TV at one point for ever recommending the stock.
That was the bottom and in short order, Zuck pivoted, dropped the Metaverse and the stock went on an epic run to 796 from 88.
So when does Meta drop out of the AI race, or at least pull back? At the low in 2022, shares traded at just 8x trailing P/E and 10-11x forward. It’s still trading at 20x now so Zuckerberg might not be feeling the pressure just yet. The market is starting to vote though and there is a gigantic head-and-shoulders top on the chart.
So the question is: How far does META have to fall in order to rug Micron?
This article was written by Adam Button at investinglive.com.
