Key insights
- The post discusses the cyclical nature of the memory chip market, particularly HBMs, and questions why producers don't limit supply to maintain high prices, similar to luxury goods. The bear thesis suggests overproduction will lead to a supply glut and market downturn. The post's relevance to US equities is moderately negative, as oversupply concerns could negatively impact US-listed memory producers like Micron.
As we all know, HBMs are produced by only 3 companies in the world, so it's an oligopoly. Also, memory is considered by everyone as a commodity. For this reason, the bear thesis is that memory producers will ramp up production due to the high demand, thus leading to an over-supply of memory chips and that will mark the top of the cycle, with the consequent burst of the memory bubble.
My question is super simple: why are producers so stupid to cause an over-supply? Can't they just regulate the production to keep a constant high demand for memory? Basically, treating memory as a scarce and precious resource. A bit like Ferrari, that produces only a limited number of cars for each model, thus keeping the demand very high.