The Race for Sales before production catches up
While thinking about the latest Nvidia attempt to drive sales I wondered why there was such a huge push to get more orders right away. Then it hit me – margins. Prices are higher because demand is so much higher than supply. This is all a race to keep orders much greater than what can be produced. If production catches up, it’s game over for a lot of companies (for their stock prices anyway).
The most extreme example of this that I know of is Sandisk. In 2023 they were valued at $30 and had gross margins of around 7%. With all the demand in the last year, their margins are way up to 70% and their stock price is $1800. While not as extreme, the same is true for Micron, Nvidia, Western Digital, SK Hynix, Samsung, TSMC, Dell and about a dozen others.
These companies are all priced as if these prices are going to stay this high forever, but there’s no way this will happen. We’ve seen this play out over and over, but there’s so much greed in the market that no one cares. Once these margins are back to normal, net profit will plummet and all these companies will lose half their value or more. This alone would wipe out more than $13T in stock value.
This is yet another reason that all these big tech players have to keep the bubble from popping and why they’re all working together to prop up any company that starts to waiver.