Serenity: AI Industry Chain Stocks Face Indiscriminate Sell-off, Some Storage Stocks Have a P/E Ratio of Only 1.6 Times

On November 5, Serenity reported that the market is experiencing severe deleveraging, with investors indiscriminately selling stocks related to the AI industry chain. The stock prices of some companies have fallen back to levels before significant orders and performance expectations were realized. Taking the storage chip company ESMT as an example, the company has a market capitalization of approximately $2 billion, with a gross profit of $526.2 million and a net profit of $330 million in the third quarter. Its net assets are around $937 million, and net cash is about $740 million, resulting in a P/E ratio of only about 1.6 times based on current annualized performance. Despite market concerns about a peak in the cycle, unsustainable profits, and a lack of competitive barriers, the trend of DDR2 and DDR3 production lines exiting is tightening supply. ESMT expects to offset the decline in consumer demand in the fourth quarter by increasing the average selling price of its products. Serenity also pointed out that manufacturers like Samsung and Micron are gradually exiting DDR2 and DDR3 production lines, while Nanya Technology has already halted related production lines. ESMT's revenue mainly comes from these two types of storage products. The market has underestimated the price support brought by the contraction of traditional storage supply and ignored the situation where Micron, Samsung, SK Hynix, and SanDisk have locked in profitability through long-term supply agreements and price floors. Serenity criticized the market for selling off AI and storage industry chain companies that generate substantial cash flow while shifting funds to Walmart, which has a P/E ratio of about 47 times, and CrowdStrike, which has a forward P/E ratio of about 180 times, arguing that the market is not focused on the actual free cash flow generated by companies but is caught up in indiscriminate selling.

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