Key insights
- The article argues that current market expectations for equipment suppliers, particularly in the data center and semiconductor sectors (e.g., Sandisk, Micron), may be overly optimistic. It draws parallels to the 2020-2021 tech bubble, where rapid revenue growth was extrapolated unsustainably. The author suggests that temporary demand surges are being misread as long-term trends, potentially leading to a future price correction when data center investment inevitably slows or companies revise orders.
There's a long list of companies that saw huge valuation increases in 2020-2021 and then fell greatly in the following years.
For example, Paypal's share price almost tripled during the pandemic to $300 but is now down to $42.
The market saw revenue growing fast and extrapolated it beyond reason. It underestimated future competition and overestimated future demand.
Now the market is likely doing a similar thing with equipment suppliers like Sandisk and Micron. Temporary demand increases are wrongly being extrapolated into future demand increases. When the data center investments slows down, there will be a drop in share prices.
Some companies will build more data centers than they ultimately need like xAI who is renting theirs out. Other big companies will decide to withdraw order reservations and slow investment.