The new ‘three magnificent’ of AI

Imagine eight two-lane roads where cars travel at high speed. When traffic increases, traffic jams eventually form. Suddenly, now there is the possibility of switching to a single 16-lane superhighway. Although vehicles may go a little slower, the number of cars that can move at the same time is immensely greater. And also, with greater energy savings.

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There are chips that allow exactly this step. They are those called high density or high bandwidth, corresponding to the English acronym HBM. It is a new generation ultra-fast memory type specifically designed to break certain computing bottlenecks, such as the bottleneck generated when modern processors (like those from Nvidia or AMD) process data for AI much faster than traditional memory can supply (this is about breaking the so-called “memory wall”).

What happens when these devices are in the hands of only three large companies? Their stocks soar like a rocket. Micron Technology, Samsung Electronics, and SK Hynix have experienced a triple-digit stock market revaluation in the last year, exceeding in some cases 1,000%. Unprecedented.

This week, after experiencing yet another surge, Micron surpassed the trillion-dollar market capitalization barrier, just like the other two, forming a golden trio in the markets. Much has been said about the reign on Wall Street of the so-called ‘magnificent seven’ tech companies. But at this rate, three more queens will have to be added. With a nuance: Samsung and SK Hynix are Korean and already represent half the value of the entire Korean stock market. Thus, the Korean Kospi index has more than tripled its value in the last 17 months, with an appreciation close to 250%: it is the most profitable stock market in the world during this period.

In general, there is a fever for semiconductors, whose prices have tripled in the last year, according to Counterpoint Research. Of the 15 companies worldwide valued over a trillion dollars, six now come from the industry and the ‘magnificent three’ are the fastest growing, also capturing 90% of the market for these novel high-performance chips.

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Micron CEO Sanjay Mehrotra says that, for now, they can only meet 60% of their customers’ demand (its manufacturing requires three times the silicon wafers of normal memory), resulting in a global shortage in the market of components that are now essential with the AI boom. This situation allows them to set prices and, in perspective, have the possibility to maintain extraordinary margins for years. “This imbalance between explosive demand from data centers and physical production capacity has given Micron an almost monopolistic pricing power,” explained XTB analysts. According to market sources, new orders for HBM chips already include price increases of 30% for this year.

There is one last detail to consider that is no less surprising: the three queens of next-generation chips are cheap, considering that HBM memory production capacity is practically exhausted and sold out in advance for the rest of the year and much of the following quarters.

Micron trades at a price-earnings ratio (PER) between 12 and 13 (four times less than Nvidia). Meanwhile, Samsung Electronics and SK Hynix range between 6 and 7, also discounting the complex Korean governance structures. A “magnificent” opportunity, some would say.