Orders Booked to 2031. The Share Price Didn't Survive the Night.
Hello. Here is the paper $Western Digital(WDC)$ handed in last night: revenue of US$3.747 billion, up 43.8 per cent year on year, net profit up twelvefold, a gross margin of 54.4 per cent that beat consensus by more than 200 basis points. On the call, management said long-term contracts are now booked out to 2031.
It fell 11.66 per cent after hours.
$SanDisk Corp.(SNDK)$ reported the same night with an even louder set of numbers: revenue of US$8.965 billion, up 371.6 per cent, a gross margin of 84.6 per cent, non-GAAP earnings of US$39.25 a share — all three ahead of expectations — and a US$14 billion buyback thrown in on top. It closed down 5.40 per cent and fell another 7.58 per cent after hours.
In the last piece I said the papers were about to be collected. They were, and both scored highly.
Goldman put it bluntly: the core problem in memory right now is not deteriorating fundamentals but the fact that expectations have run too far ahead of reality — and in that mood, guidance merely in line with consensus gets read as a disappointment.
SanDisk did walk into exactly that. It guided next quarter's revenue to a midpoint of US$10.55 billion, 5.4 per cent below consensus and 9.5 per cent below Goldman's own model. One soft line of guidance, and the 371.6 per cent behind it stopped counting.
That wasn't Western Digital's problem, though. Its guidance for the next quarter came in at a midpoint of US$4.1 billion against consensus of US$4.04 billion, and earnings of US$4.00 a share against consensus of US$3.80. The guidance didn't soften. It still fell 11.66 per cent.
So what got cut wasn't the guidance. It was the part already loaded into the price. SanDisk was already about 40 per cent below its June high, and that still wasn't cheap enough.
Leverage felt it first. $SK hynix(SKHY)$ fell 2.17 per cent on Wednesday, while $CSOP SK Hynix Daily (2x) Leveraged Product(07709)$ dropped 12.99 per cent, $Direxion Daily Semiconductors Bull 3x Shares(SOXL)$ fell 5.60 per cent and $Direxion Daily Semiconductors Bear 3x Shares(SOXS)$ rose 6.50 per cent. Goldman's note had expected Micron to be dragged down by SanDisk's print; $Micron Technology(MU)$ closed up 0.06 per cent and barely moved. The transmission didn't run through Micron. It ran through leverage and through Korea — $SK hynix(SKHY)$ hit its 30 per cent limit-down in pre-market trading today, and the Nextrade exchange has said it will bring in volatility circuit breakers.
The same day, $NVIDIA(NVDA)$ rose 3.43 per cent, touched US$222 intraday, its highest level since 3 June, briefly approached US$5.8 trillion in market value, and closed higher for a fifth straight session. $Advanced Micro Devices(AMD)$ fell 7.04 per cent, $SpaceX(SPCX)$ fell 13.61 per cent and shed roughly US$225 billion of market value in a day, and $Alphabet(GOOG)$ fell 4.05 per cent as a veteran research chief departed, DeepMind was folded into a new structure and the whole AI organisation was pointed at the large-model business.
The money hasn't left AI. It is gathering around the one name that no longer needs explaining. And those five sessions were unusually even — since last Thursday every one of them has landed between 2.5 and 3.5 per cent, not a single spike, bought up a piece at a time. In the last piece I said the entry from SpaceX's purchase commitment was on the books and the price hadn't moved on it. On Wednesday it moved.
Gold looked like money switching tracks: $Gold - main 2612(GCmain)$ rose 6.06 per cent on Wednesday and cleared US$4,300, with $Silver - main 2609(SImain)$ up 3.88 per cent to US$62.38. The macro obliged — ADP payrolls added just 44,000 in July against 70,000 expected, a third straight month of softening; oil fell 5.5 per cent on the day; the dollar index broke below 100; and the implied odds of a September rate rise slid from close to 70 per cent to the mid-fifties.
None of that adds up to a move that size. One estimate puts the whole package at 0.5 to 1 per cent of gentle upside; spot gold rose 4.48 per cent. Short positions filled the gap: CTAs were still net short gold, having built those shorts through five months of a downtrend, and managed money actually cut its net long by 3,258 contracts into this bounce. There was no real bid. The price was pushed up by covering.
The reason for the move is real. The size of it is borrowed.
The SpaceX lock-up lands today: up to roughly 911.5 million insider and employee shares become eligible to sell, a fifth of the total that can come free. Musk had spent the day before pulling forward the date when annual revenue touches a trillion dollars — the story stretches further out, while the right to sell arrives now. Non-farm payrolls follow right behind.
A long-term contract can lock in revenue out to 2031. It couldn't lock in one night's 11.66 per cent.
The above is personal analysis, not investment advice.
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