June was another busy month for technology-related news \u2013 the latest quarterly reports were published, new models were launched, and new compute deals were signed.
The most prominent positive event for us from a portfolio perspective in June was Micron's quarterly report. First, it forecast a gross margin of 86% for the next quarter \u2013 an extraordinary result and a level that would have been historically unthinkable in the memory industry. Second, the visibility that Micron now has is very high, as an increasing portion of its business will be covered by long-term fixed-price agreements (LTAs). It is a remarkable level of predictability that we are now seeing across the industry \u2013 both in terms of prices and volumes.
For Micron, which trades at a P\/E of 8, the market is still clearly concerned about the risk of downside cyclicality. However, these long-term agreements help to reduce that risk. Together with continued upward revisions to earnings forecasts, we also see potential for further revaluation of the stock, as the LTAs should significantly reduce the negative effects of cyclical fluctuations.
It is also important to note that the customers signing these LTAs are committing to pay significantly higher memory prices than they have historically, and for a long period of time. This is a very clear signal that they themselves assess that the current situation, where demand exceeds supply, will persist for significantly longer than the market previously anticipated.<\/p>\n\n\n\n