Transcription
We're going to have to spend some time talking about why Micron is up 18% and this upgrade and why it's so important. And it's probably the single most important upgrade we've had in 26. And I'm going to explain why in detail.
I do want to go through the spy and point out the obvious before we get into it. If we take a look at the spy, you're very clearly hitting a new high. It's not really rocket science. If you take a look at the cues, they are leading. One of the things I like to do is take a look at the cues relative to the spy. And you're getting a lot of data out of this and I want to walk through that then tie it into Micron. One sector it's in tech is actually getting slaughtered after hours. We need to talk about that too. But let's jump into it.
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So, if we look at the cues relative to the spy, you have a breakout. What I tend to do with this is I actually tend to chart it just like a chart. So, I will come in here and overlay the 55, the 22, and the 12 and make sure that we are doing what we're supposed to be doing. Because when you're not following this and you don't have this kind of breakout and you start having this kind of stuff where the S&P is actually leading, it leads to a pretty tough market. When you come out of that, you'll note from here over, that's when we've bottomed and that's when it started to lift. The higher highs, these are all signs that the market is actually pressing and going forward. And now you have a breakout. Now, it's a pretty impressive breakout relative speaking. If you go and take a look at this just historically through time, uh, and you can go all the way, you know, back to when it was back here, back in the day. But you've been you've been setting up here for a couple years for this kind of breakout. And I think it's really important to point that out because that does show that we're healthy.
The other thing that I would just point out is S5FI and we'll take a look at the 50-day here. If we look at Fridays, you closed at 56. This is stocks above the 50-day moving average. I do want to spend a moment and just go through the breath before we dive into this because if we look at the breath of the market, you're going to get the 200, the 50, the 20, and the five. And this is important for us because it shows us which way that we're heading. And you can see that we are all curling up on all of them, including the 200, which is good for the S&P, but it's also good for the NDX and what's going on there. So, if we take a look at the NDX here for a second, come on, work with me. Not against me. And then we overlay this and we just take a look at this and go, well, we'll just drop it here. We'll drop it hot like the kids say. And we'll let it cook. Isn't that what they say now? All right. So, then we're going to go here and then we're going to go move to pain below. And you can take a look at this and see exactly how it's moving. And once this bottoms like it did here, you just see that we're starting to curl up and it's pretty much exactly what you want to see. So, I'm pretty happy with the way that this is going.
I do think that it's worth paying attention to because I've been looking at the RSI and I really have been a little concerned about this pattern here that oh boy, we're going to have an issue now with what happened with Micron today and if we see follow through from other investment banks on this and the way that they're looking at it and I I'm going to just tell you ahead of time, I do agree with the way that UBS is looking at this. You're going to have to make your own decisions, but we're going to get into that and it is obviously going to drive the socks up. But let me just get through this and I'm going to reiterate this at the end, too. Um, if you're trying to get into the community, the the the last email went out today for 24 hours. You have till Wednesday, 9:00 a.m., I think, and then that's it. And then I think it'll probably be a month before we uh open it up again for enrollment. But you see how you're breaking that DTL? I think that's really important. And I think that that is solidifying which way we're actually heading here. And I'm glad to see this because this was a really big concern of mine today. We we're seeing money flow in. I'm a little concerned about what we're seeing after hours in the IGV and the software space, but Micron and the follow through and what I think you're going to see tonight over in Asia as well. I think it's pretty going to be pretty significant. We'll find out tomorrow morning. Um, but I think that this is really going to be the the driver of the week. So, let's get to it.
Okay. Let's start with some basic facts that people might know, they might not know. But in front of you is the S&P estimates and where the revisions are coming from. The share of the S&P 500 earnings revisions. 51% of that is Micron. And then you have your breakdown of the others that are in here as well. But I think it's really important to point this out before I go any further. Micron on their S&P revisions, their percentage is 51% of the growth. If you look at this, and I think it's really important to just point these things out, earnings provisions since February 27th are 93%. So they have revised up 93% and you have 605% growth. Now to be clear, you can see down here, this is a source by Faxet and then Faxet that data was then presented by UBS. I want to be make this clear. It's not me putting this together, but you can see it's UBS versus the street and where their differences are. But if you look at street estimates versus old estimates and new estimates, you can see that UBS is taking their estimates up pretty strong. And they are also taking their gross margins up to 83% operating margins, free cash flow. There's some pretty staggering numbers that are going to happen here. When you look down at these numbers and you start seeing 297% year-over-year growth in revenue, the question about this has been sustainability. And that's why these names have traded so cheaply. The question is now are they going to start rerating them? And by rerating them giving them a real multiple and the question is why would they do that? So the question is are they going to rerate them all? And then the question is why would they rerate them all? This is really important to get because it's not just oh it's hyperbole, oh it's this, it's that. If they start doing this across the board, this is going to be a much bigger driver than people think it is. So let me explain.
So in front of you is fixed versus floating under long-term agreements. So, you're going to get under long-term agreements here, and that's going to be a dotted line in black. And then under no long-term agreements here, floating. There's floating, meaning you don't have a long-term agreement, and under long-term agreement. The argument is a very large percentage of what they have now is under long-term agreement. And when we start to see that, what they're showing you is the difference in and the jump used to be 1050, now it's 15. The reason for this is because people are trying to get and secure everything that they need. So, they're willing to go into a long-term agreement for something that they think is a commodity because they can't get it. This is very similar if you think about what happened with Taiwan Semi on Friday when AMD went to Taiwan Semi and well, Intel went to Taiwan Semi today to try and get supply of chips because demand is so great. And we saw this with Lenova. If you haven't seen Saturday's video, I would definitely watch it. And I would definitely watch the part about Lenova that shows a bottleneck. This matters because if you go from fixed to floating, the question becomes, the stability of earnings means that they could rerate the stock.
So, let's just take a couple things from the report. So, they took a price target and now they're 1625, which is huge. The reasons for doing this are the LTAs I just showed you now firmly in place with most of the industry from 27 to 29. Estimates are being raised again. Expect comfortably above 100 throughout the period with Micron generating $400 billion in free cash flow in the same time frame. And the reason that this is so important, earnings are expected to remain comfortably above 100 through 27 to 29, 400 billion in free cash flow. The importance of this is the long-term agreements that add stability to that versus the floating. So, as we showed you in the previous graph, you're looking at something that's gone up close to 50% in a very short period of time. They're raising the estimates because the LTAs, the long-term agreements are now eating up supply. So, it's it's not just you want to say it's a double-edged sword, but it's really feeding upon itself. When you look at something like this, what they're doing is if you're going to sign a long-term agreement that's increasing by 50% versus the floating agreements, that's going to eat up that supply. Which means if you don't enter a long-term agreement, you're going to be in a floating agreement and then you're going to have to deal with price and supply issues. $100 is sustained. EPS is expected to remain comfortably above 100 throughout 2729. 400 billion in free cash flow, cumulative free cash flow. This is their price target. And then I put it together in a little graph down here. Yay.
Now, the question that you should be asking is, what kind of multiple are they using? Wow, their multiple must be absolutely insane. And it's not. It's far from being insane. So what they're doing and just so we're clear on the basis UPS has taken their price target from a 15 multiple from a five. So I want to just be clear about this 51% of the earnings growth on the EPS growth coming to the S&P is coming from a company and they're taking it from a five PE to a 15 PE. It's not even trading at the same PE multiple as the S&P. So the rerating is being argued. It shouldn't be at a cyclical discount, but in line with broader semiconductors because of the LTA. Whether you agree with this or disagree with this, frankly, I don't care. It's not up to me to make that decision. Here it is in a graph so that you can see it. Yay. The purpose of me showing you this is so that you can make your own decision. You don't have to agree with it. You can say, "I disagree. It should stay at the same multiple." But at least now you know how the streets viewing it and how institutions are going to view this particular piece of research. And this can have follow-through effects.
So usually on Wednesdays we were doing a strength report and then we got away from that. So tonight's going to be very similar to how we would do a strength report showing you what's really leading the market. And I think this is a really good time to do it. So if we look at Micron, everyone's going to say that it's super expensive. We just walked through that it's trading at a discount to the S&P. The problem is do are you going to say it's cyclical and it's going to die or are you going to look at the long-term agreements? This is a decision everybody has to make. Nobody can make it for anybody else. Nobody's right, nobody's wrong. It just is, right? You have to make these decisions. For me, it's a no-brainer. We've been going through this and we went through this one actually on Saturday, I believe, as well. We put a swing on this and I'm just going to show you this so that you can do it for yourself. Anything that's getting near that 22 or touching that 22, they're becoming your new bases and you can go through pretty much any name in the space right now and you're either holding that or you're breaking it. So, they're becoming your demarcation lines on that last pull down.
If you look at the volume here, the volume's pretty insane. The question is why is it insane and why did it hold the way that it did? And this is really simple to see. I'm going to drop this to a one and I just want to clean this all off and just show you something. Just off a simple one minute opening range breakout gapped up over and held. No matter if you're using that, if you're using candlesticks, doesn't really matter, but up over holds, retest that area, and it never looks back and then you spend the day just grinding higher and higher and higher. One thing that you'll note about this, if you dropped a VWAP on it, you never even got close except for once in the first half hour, bounced right off of it, and then just kept on going. Super important to get this. And then here we're going to look at the volume for a second and you'll see even here let's get rid of make sure no pre and post and you'll see that into that market on close you had nothing but buying after hours it's up but I think it's up for another reason. Well I think there's something that's going to add to people wanting to buy these names. But if if you take a look at this and we've been talking about DRM forever if they're going to rerate Micron.
So then let's go take a look at something like a SanDisk and say all right well is SanDisk going to go to longerterm contracts or has SanDisk gone to longerterm contracts and if so is someone going to come out and start rerating these kinds of companies? Remember this company was supposed to do $14 last quarter they did 25. If you extrapolate out zero growth and you put a $100 on it just off of that alone and you look at where it's trading you're at a discount to the S&P. The question becomes, is this a cyclical business? Are they going to do a long-term contracts? And then if so, then you would say the long-term contracts might mean that they're going to rerate this name. Very similar. Caner did something where they put an $1,800 target price on it after earnings. And their reason was that they said that they, you know, that rerating system that's out there. You don't have to agree with it. You can always drop your comments and we can talk about it. I do read all of them. But this is what's happening so that you understand that if you take a look at DRAM and the names that are in DRAM, I think that this is exactly what's going to happen overnight tonight in with Asia as well in South Korea. And I'll I'll explain it.
So if you look at DRAM as a whole, we're seeing DRAM absolutely break out and you can see from when it when it opened to where it is and you can see the volume that's coming in why well this is three specific companies, right? This is Micron and then you have Samsung and Samsung went through all those issues with what with all the unions and they're still having union issues and then you have SKH Highix. So if you look at these names and what they're doing, they're absolutely ripping. The thing is when we move here and then they have access to it at 8:00 this evening, those names at the time of recording this, you can see when I'm recording it right here at when they come in overnight, they're going to take a look at this and say, "Hey, wait a minute. They're rerating those companies." Does Samsung have long-term contracts? So, this kind of thought process starts feeding upon itself. You don't have to agree with it or disagree with it. I've already made my decisions pretty obvious. But when you start to see things like EWI breaking out and people are saying, "Oh, well, I missed it." And you realize that Samsung and Heinix are trading at eight times earnings and the rest of the index in and of itself, I think, is trading at 12 or 13. The S&P is at 22, just to put it in perspective. I think 21 or 22 right now just to put it in perspective. So you can see these names across the board be rerated and then if they are rerated where do they wind up going and this becomes a question of do the analysts want to fall behind? Meaning how far behind do analysts want to fall before they're left in the dust and they're starting to look silly? The US the UBS report I read was 30 pages. I I took pieces out and highlighted what I thought was the most important. But that's where my head goes with this. And it doesn't mean they're going to do that, but it certainly means that if this is worth that, then that might be worth something else. And then you start seeing that trickle down with going, well, wait a minute. Does something like Seagate, do they start having more longerterm contracts or Western Digital start having more longerterm contracts? Remember, Micron is the memory and then what we have here is the storage, right? So if you think of memory as a bank teller and then you think of storage as the bank, you know, think of it that way. It tends to make a little more sense when people are trying to put these pieces together. I think it's super interesting and I think it's definitely worth your time.
The other side of this is that we've had a couple different drivers, but those drivers are starting to dissipate. And I'll show you what I mean. So Zcaler came out with earnings tonight and the stock's down about 40 bucks. And it wasn't a good quarter. The quarter in and of itself looks okay, but they took revenue down for next quarter and they said earnings are going to be up because of the cost cuts. So, the EPS will be up and the because they're going to cut costs in order to get the EPS up, but the revenue is going to be down. That's not what people want to hear from a company that's supposedly going to turn it around and we don't have to worry about it. So, this is going to hurt the IGV names tomorrow. So, you're starting to see IGV drop. CIBR, which has been an absolute monster for us, is down about a dollar and a half after hours. And some of the high flyers such as Crowd is down about $20. PW is down about $15, $16. Now, I'm going to just tell you this. I don't know that these numbers stay. I don't know that they don't step in front of these tomorrow. But this is what I do know. You can take an event and look at when that event happened and then look at what the market's doing with this with the event, right? So, this event happens and you start seeing them sell down at 3:30 and they can't get out fast enough into the close right into phase. And then if we take a look here, we're going to get wow jeez. All right. And then what we're going to have to do is mark that off in this area. And you're going to see that's like 403 when it hits. And so that hits at 403. It's pretty bad. At the time recording this, I'm actually short zcaler.
Here's what you here's what you can do with this. You can take the two subsectors and then compare them and and take a look at this. What I've done here is I've marked off when Zcaler came out with earnings. The minute it came out with earnings and they didn't like what they saw, they started selling it down. The minute that that started selling down, you can start seeing that DRAM starts lifting. It's my understanding or my belief I should say that they are tra they are rotating into the memory names. This is good shortterm. Long term, you just don't want one sector leading all things. We don't want one ring to rule them all, right? So, we want to be cognizant of that. But this is definitely on my radar and I do think you're going to see more of this. What we want to do is watch those names tomorrow. Meaning, you want to watch Crowd Strike tomorrow and see how that acts. Let's get to that. And let's go back to a bear chart. And so, you're going to want to watch Crowd Strike tomorrow and see how that acts. It has had a pattern of undercutting and ripping. Undercutting and ripping. And it may do that tomorrow or people might say, "Hey, I want to lock in my profit." So, you're going to have to be really careful here off that open. But there's definitely something to it. Now, every single one of these undercuts has held before. So, the question really is how close to zcaler is pw is crowd strike. If their businesses are closer, then yes, it's going to matter. If their businesses are further away, it might not matter as much, but it's definitely something that has to be on our radar tomorrow. And that, in my opinion, is why you're seeing names like Micron uh and DRM and and they're actually gaining steam into the night. I also think that you're going to see a little bit of that because of the Asian market. people know that you could start seeing some kind of uh rerating there. And I think that's important as well.
If you look at the socks, absolute breakout on the rerating. If you take a look at AMD, followed through day. Really surprised by this, but I guess I shouldn't be, but candidly I'm I'm a little surprised by it. Uh you did the undercut after earnings, got all the stops out, and then you just ripped in everybody's face. You didn't see the follow through the same way with Intel today. Nvidia, you know, no one really wants to own the the leader anymore. course you've seen a lot of weight on there. Um, if we go and take a look at some of the other pieces that are associated with ND or DRAM, 39% of Lamb Research's business actually comes from ND DRM. And you can see how they they're acting right now. They're ripping everybody's face off. All these foundaries that are out there, they're all going to start needing ASML. I think that's really important for us to get as well. So, I do think there's some other other big players out there. We did I I just want to go through one more thing that I think is really important. If you take a look at UFO, not really crazy about the Dogee. The ASTS is becoming, you know, they think that it's Starlink. It's not. It doesn't matter. They're going to try and take out the highs here. Rocket Labs to me actually held up much better than I thought it would, hitting an all-time high. Um, and you know, you got right up to where that the call wall I think is like 150. So there are those names and I think if they transfer out of software that they're going to rotate into these other sectors, but it's really impossible to look at the cues, look at a breakout like this on that rerating and not think that this is going to finally fix itself.
So if we go here and get rid of the pre and the post, I'll show you this way on it. You're breaking that downward trend line. So if I clean this all off, and I think that this is worth our time. If you break that all off right here, you're breaking that downward trend line. So, that can fix itself because you have that negative divergence there. And it seems like we're leaning that way right now. Um, just a quick reminder, if you're trying to get into the community, there was a letter that went out this morning for some people that are on the wait list. Uh please check your email because that expires uh Wednesday, tomorrow morning at 9:00 a.m.