Micron (MU) was my inaugural stock pick for the first issue of the Mad Hedge Technology Letter on February 1, 2018, and it's time to check this neck of the woods after yesterday's earnings call.

Since I urged readers to jump into this stock at $40, it has skyrocketed to an intraday high of $61.85.

Not bad for a seven-week return.

A bet on Micron is a bet on its visionary leader, Micron CEO and UC Berkeley graduate, Sanjay Mehrotra, who has the propensity to be brilliant.

Mehrotra individually holds 70 chip patents.

He initially was credited for driving outperformance as SanDisk's CEO until Western Digital (WDC) acquired SanDisk in 2016.

Mehrotra has worked at every point on the supply line and knows the industry inside out. He is a pathfinder in a sea of cutthroat competition, and I drop everything to listen to his earnings call. You should do the same.

Rattling off numbers will not do justice to the brilliance of Micron. The great metrics are endless not to mention EPS growth up 15% QOQ, and up over 200% YOY. Cash flow generated from operations was $4.3 billion representing 59% of revenue, which compares to $1.8 billion a year earlier.

Almost every number outperforms sequentially with raised guidance.

The key takeaways were SSD (Solid State Drive) sales up 80% YOY, and the sale of cloud and enterprise solutions more than tripled YOY. Particularly, DRAM chips are Micron's bread and butter, and the DRAM market is suffering from tight supply.

DRAM comprised 71% of total quarterly revenue, and DRAM revenue was up 14% QOQ and 76% YOY.

Shipment volume rose while ASPs (Average Selling Price) increased in the low double-digits. DRAM gross margin was 66% in the quarter and up 22% YOY.

Roaring demand for DRAM and NAND products ushered in record quarterly revenues for the automotive market segment. Strong numbers came from ADAS (Advanced Drive Assistance Systems) and in-vehicle experience applications.

An expanding smorgasbord of DRAM and NAND solutions mean Micron is well-positioned to continue to captain the ship in this rapidly growing market.

A surge in the percolating industrial IoT (Internet of Things) market, expanding factory automation, and surveillance applications mesh nicely with Micron's product offerings.

The newest standards in mobile, automotive devices require rapid data analysis in storage, enterprise and cloud servers, including machine learning, training and inferencing to supplement the computing taking place at the edge.

Automotive clients will thrive from Micron's highest speed LPDDR4 (Low Power Double Data Rate Memory) solutions and other upcoming memory technologies such as the high-bandwidth GDDR6 graphics memory.

The fostering of AI materializes in AI smart cockpits in new automotive models. The instrument dashboard integrates with infotainment and telematics systems with a centralized computer and storage architecture to create a data center on wheels.

Voice and gesture recognition mixed with driver alert monitoring capabilities forge more intelligent and computer intensive automobiles requiring more powerful memory and higher capacity.

Micron has plowed significant investments into the data center to jack up memory and high-performance storage. An important sign is Micron's embedment into the heart of smart car development.

Smartphone makers paraded around high-end smartphones with bigger 4K displays, multiple high-resolution cameras, and 4K HDR video recording at the Mobile World Congress.

Capacity for SSDs are rising in new flagship models using 64GB of flash memory at a minimum. Micron's NAND solution is tailor-made to meet the demand, and Micron is best of breed in TLC (Thin Layer Chromatography) utilization.

Consumers will see a new emphasis on the implementation of A.I. and A.R. into new phones by OEMs (Original Equipment Manufacturer).

It soon will be standard to include facial and voice recognition, real-time translation, fast image search, and scene detection. This is the next gap up for smartphones.

Micron is perfectly positioned for the onslaught of fresh data the world will grapple with soon. High-end smartphones are traversing toward 6GB of LPDRAM, boding well for Micron considering Micron's preeminence in LPDRAM.

The hallmark of this technology is power efficiency essential for optimizing battery life. The LPDDR4's goal is to double data rates (up to 3200 Mb/s) over last generation RAM. Faster memory speeds will support the new migration toward this progression.

Capital investments of $7.5 billion will sustain Micron's leadership status, and Micron targets R&D at 30% to total revenue. Cost will incur transforming to high-value solutions and accelerate with revenue. Steps have been put in place to begin execution of funding the development of the fourth generation of 3D NAND technology.

Micron is in the midst of improving its R&D facilities to accommodate the future of 3D NAND nodes. The trend of higher R&D costs is universal in the semiconductor area as optimal bit growth makes a huge difference in how products are formulated.

The only hiccup in an extraordinary quarter was a maintenance issue at a Taiwan DRAM fab plant, reducing production and dragging down revenue for next quarter by 2%.

However, if you stand back a few feet, Micron's results were nothing short of spectacular. Mehrotra's way of laying out the awe-inspiring future, and Micron's ability to cross-intersect with almost every major secular trend especially pinpoint attention to automotive vehicles is genius.

Micron sold off hard on the earnings and was down more than 8% aftermarket, but this is certainly a case of rising too far too fast mixed with the broad-based China tariff sell-off.

This stock is a tap in to pierce the $100 mark and is pivotal to the future of American technology. It should be at the vanguard of any serious portfolio, and a slew of Micron Trade Alerts is waiting in the pipeline.

The fascinating thing here is that the dynamics of the chip industry are totally changing. It used to be highly cyclical and volatile. But chips are becoming so endemic to the modern economy that they are stabilizing the industry on a long-term basis.

These earnings are no flash in the pan, no one-hit wonder.

Load up on Micron shares on any serious dip.

 

 

 

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Quote of the Day

"Two years from now, spam will be solved." - said Bill Gates, founder of Microsoft, at the World Economic Forum in 2004

If Jack Dorsey's proclamation that bitcoin will be anointed the global "single currency," it could spawn a crescendo of pollution the world has never seen before.

In a candid interview with The Times of London, Dorsey, the workaholic CEO of Twitter (TWTR) and Square (SQ), offered a 10-year time horizon for his claim to come to fruition.

The originators of cryptocurrency derive from a Robin Hood-type mentality circumnavigating the costly fees and control associated with banks and central governments.

Unfolding before our eyes is a potential catastrophe that knows no limits.

Carbon emissions are on track to cut short 153 million lives as environmental issues start to spin out of control while the world's population explodes to 9.7 billion in 2050, from 8.5 billion people in 2030, up from the 7.3 billion today. All these people will need to barter in bitcoin, according to Jack Dorsey.

Cryptocurrency is demoralizingly energy intensive, and the recent institutional participation in crypto server farms will exacerbate the environmental knock on effects by displacing communities, destroying wildlife, and climate-changing carbon emissions.

This seemingly controversial means to outmaneuver the modern financial system has transformed into a murky arms race among greedy crypto currency miners to use the cheapest energy sources and the most efficient equipment in a no-holds-barred money grab.

Bitcoin and Ethereum mining combined energy consumption would place them as the 38^th-largest energy consuming country in the world - if they were a country - one place ahead of Austria.

Mining a bitcoin adjacent to a hydropower dam is not a coincidence. In fact, these locales are ground zero for the mining movement. The common denominator is the access to cheap energy usually five times cheaper than standard prices.

Big institutions that mine cryptocurrency install thousands of machines packed like a can of sardines into cavernous warehouses.

In 2015, a documentary detailed a large-scale foreign mining operation with an electricity outlay of $100,000 per month to create 4,000 bitcoins. These are popping up all over the world.

An additional white paper from a Cambridge University study uncovered that 58% of bitcoin mining comes from China.

Cheap power equals dirty power. Chinese mining outfits have bet the ranch on low-cost coal and hydroelectric generators. The carbon footprint measured at one mine per day emitted carbon dioxide at the same rate as five Boeing 747 planes.

The Chinese mining ban in January set off a domino effect with the Chinese mining operations relocating to mainly Canada, Iceland, and the United States. Effectively, China has just exported a tidal wave of new pollution and carbon emissions.

Bitcoin is mined every second of every day and currently has a supply of from approximately 17 million today, up from 11 million in 2013. Bitcoin's electricity consumption has been elevated compared to alternative digital payment currencies because the dollar price of bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it.

To add more granularity, miners buy more servers to maintain profitability then upgrade to more powerful servers. However, the new calculating power simply boosted the solution complexity even faster. The mine was practically outdated upon launch, and profitability could only occur by massively scaling up.

Consumer grade personal computers are useless now because the math problems are so advanced and complicated.

Specialized hardware called Application-Specific Integrated Circuit (ASIC) is required. These mining machines are massive, hot, and guzzle electricity.

Bitcoin disciples would counter, describing the finite number of bitcoins - 21 million. This was part of the groundwork laid down by Satoshi Nakamoto (a pseudonym), the anonymous creator of bitcoin, when he (or they) constructed the digital form of money.

Nakamoto could not have predicted his digital experiment backfiring in his face.

The bottom line is most people use bitcoins to literally create money out of thin air in digital form, rather than using it as a monetary instrument to purchase a good or service. That is why people mine cryptocurrency, period.

Now, excuse me while I go into the weeds for a moment.

Enter hard fork.

A finite 21 million coins is a misnomer.

A hard fork is a way for developers to alter bitcoin's software code. Once bitcoin reaches a certain block height, miners switch from bitcoin's core software to the fork's version. Miners begin mining the new currency's blocks after the bifurcation, creating a new chain entirely and a brand spanking new currency.

Theoretically, bitcoin could hard fork into infinite new machinations, and that is exactly what is happening.

Bitcoin Cash was the inaugural hard fork derived from the bitcoin's blockchain, followed by Bitcoin Gold and Bitcoin Diamond.

Recently, the market of hard fork derivations include Super Bitcoin, Lightning Bitcoin, Bitcoin God, Bitcoin Uranium, Bitcoin Cash Plus, Bitcoin Silver, and Bitcoin Atom. All will be mined.

The hard fork phenomenon could generate millions of upstart cryptocurrency server farms universally planning to infuse market share because new currencies will be forced to build up a fresh supply of coins.

If Peter Theil's prognostication of a 20% to 50% chance of bitcoin's price rising in the future is true, it could set off a cryptocurrency server farm mania. By the way, Theil also believes that there is a 30% chance that Bitcoin could go to zero.

A surge in price of bitcoin results in mining cryptocurrency operations everywhere by any type of electricity, especially if the surge maintains price stability. Even mining in Denmark, where one finds the world's costliest electricity at $14,275 per bitcoin, would make sense.

Recently, miners' appetite for power is causing local governments to implement surcharges for extra infrastructure and moratoriums on new mines. Even these mines built adjacent to hydro projects are crimping the supply lines, and consumers are forced to buy power from outside suppliers. Miners are often required to pay their utility bills months in advance.

By July 2019, mining will possibly need more electricity than the entire United States consumes. And by February 2020, bitcoin mining will need as much electricity as the entire world does today, according to Grist, an environmental news website.

Geographically, most locations around the world could be profitable based on today's bitcoin price of $9,000. The few places that are exorbitant are distant, tropical islands, such as the Cook Islands at $15,861, to mine one bitcoin. If you'd like to drop your life and make a fortune mining bitcoin, then Venezuela is the most lucrative at $531 per bitcoin.

Who doesn't like free money? Set up a few devices, crank up the power, collect the coins, pay off the electricity bill, pocket the difference and hopefully the world hasn't keeled over by then.

 

 

 

 

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Quote of the Day

"If privacy is outlawed, only outlaws will have privacy," - said Philip R. "Phil" Zimmermann, Jr., creator of the most widely used email encryption software in the world.