One Design Change at Nvidia Sank Memory and Lifted Optics
Hello. Friday's payrolls report was genuinely bad: July payrolls fell by 23,000, the May and June gains were revised down by a combined 103,000, and hourly earnings rose just 3.2 per cent year on year.
$S&P 500(.SPX)$ rose 0.62 per cent to a record close. $NASDAQ(.IXIC)$ rose 1.30 per cent and $Dow Jones(.DJI)$ 0.28 per cent.
Data that bad turned out to be good news, because the market immediately cut the odds of a September rate rise to about 44 per cent. Loosen the rate outlook and valuations get room to breathe: $Palantir Technologies Inc.(PLTR)$ rose 10.32 per cent as Bank of America, JPMorgan and Oppenheimer all named it a top AI pick at once; $Rocket Lab USA, Inc.(RKLB)$ rose 9.46 per cent; $Direxion Daily Semiconductors Bull 3x Shares(SOXL)$ rose 5.99 per cent; $NVIDIA(NVDA)$ rose 2.27 per cent. $SpaceX(SPCX)$'s 15.83 per cent doesn't belong on that list — it rose because the unlock landed and the selling never came.
Memory got none of it. $SK hynix(SKHY)$ fell 3.92 per cent, $SanDisk Corp.(SNDK)$ 3.68 per cent and $Micron Technology(MU)$ 0.44 per cent. Over the week, $SK hynix(SKHY)$ was down 15 per cent against 5 per cent for the Kospi and 9 per cent for Samsung — far worse than its own market.
Rates can't rescue it, because rates aren't what is holding it down.
The same day, optical names were rising. $Applied Optoelectronics(AAOI)$ rose 9.19 per cent, $Marvell Technology(MRVL)$ 3.89 per cent, $Coherent(COHR)$ 13 per cent, $Lumentum(LITE)$ 6 per cent and Corning 5 per cent.
These two aren't going their separate ways. They are two ends of the same thing. Nvidia plans to cut the amount of HBM per rack on Rubin Ultra and use optical interconnect to link racks instead. In the last piece I wrote that the lower HBM configuration was a way around the shortage. That was only half of it. What used to be solved by stacking more memory is now being solved with optical interconnect, so the demand moves from memory makers to optical suppliers.
Hedge funds have already turned this into a trade, and it has a name: short memory, long optical. The person who put it forward is a well-known memory bull, and says the long-term view on memory is unchanged — this is a short-term call only. Three reasons: Korea's leveraged ETF market has stopped functioning properly and the money in it faces redemptions, which adds selling pressure to memory stocks; the Rubin Ultra architecture change; and a hardening view that memory prices peak within two quarters.
The sell-side is marking down too. Citi keeps its buy on Micron but has cut the target from US$1,400 to US$1,150, expecting prices to peak next May, on capacity expansion at CXMT and YMTC. And CXMT has been added to an AI memory ETF — new supply getting its first stamp of approval from an index.
Others say what changed is the share price, not the fundamentals. $Applied Optoelectronics(AAOI)$ was the same company at US$140 as it was at US$75; optimising memory use on Rubin Ultra is something Nvidia does with every generation; the market is simply rotating from one bottleneck to another. JPMorgan is on memory's side: it calls the report that HBM4 will be priced at half a rival's level in 2027 inaccurate, keeps its overweight, and reckons the worst is behind.
Who is right won't be settled until contract prices come out. But one thing was already settled on Friday.
AAOI's move didn't rest solely on the proposal to ban Chinese optical modules. It handed in results first: second-quarter revenue up 86 per cent to US$191.9 million, the data-centre business past US$100 million in a quarter for the first time, 800G revenue up more than tenfold year on year and double quarter on quarter, and customers asking for 20 to 40 per cent more than it can supply. Optics already has numbers you can check. Memory is still waiting on next quarter's guidance.
Supply picked up another source as well. $Tesla Motors(TSLA)$ and $SpaceX(SPCX)$ together announced US$16.8 billion for a Texas AI-chip park called Terafab, about 100 million square feet, packing logic chips, memory manufacturing, advanced packaging and test into one site, with Intel confirmed as the manufacturing partner. Tesla rose 2.83 per cent on the day and Intel 1.84 per cent. Tesla recruiting memory-processing engineers last Thursday now has a sequel — they don't intend to use less memory, they intend to make their own. The supply chain didn't move as one: packaging and test name Amkor rose 2.05 per cent, while Vertiv, on power and cooling, fell 1.01 per cent.
Gold is still climbing. Futures rose 1.02 per cent to US$4,384 on Friday, touched a seven-week high intraday and have gained roughly US$300 over three sessions, with silver up 0.66 per cent to US$63.75. In the last piece I said the size of that move was borrowed; the market is now using the word squeeze for it too, though what is pushing it has changed — first oil falling to hold inflation down, then payrolls pulling yields and the dollar lower.
July CPI lands on Wednesday at 20:30 Singapore time, and it can push those rate expectations back up. But memory isn't waiting on rates. It is waiting for someone to tell it how much memory Nvidia's next generation actually uses.
A note on sources: the moves for Coherent, Lumentum and Corning are cited from market reports rather than this piece's own price feed; the payrolls revisions and hourly earnings figures are as published. The above is personal analysis, not investment advice.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
