Serenity: The market is indiscriminately selling off the AI industry chain, with some memory stocks' valuations already as low as 1.6 times annualized price-to-earnings ratio.

November 5th, Serenity posted that the current market deleveraging has been quite severe, with investors indiscriminately selling off stocks related to the AI industry chain, and some companies' share prices have even fallen back to levels before major orders and performance expectations were realized.

Serenity cited memory chip company ESMT as an example, pointing out that the company has a market value of approximately $2 billion, achieved $526.2 million in gross profit and $330 million in net profit in the third quarter, with net assets of about $937 million, including net cash of approximately $740 million. Calculated on an annualized basis of current performance, its price-to-earnings ratio is only about 1.6 times. Despite ongoing market concerns about the cycle peaking, unsustainable profitability, and lack of competitive barriers, the trend of DDR2 and DDR3 production line exits is tightening supply, and ESMT expects that in the fourth quarter it may offset the decline in consumer demand by raising average product prices.

Serenity also pointed out that manufacturers such as Samsung and Micron are gradually exiting DDR2 and DDR3 production lines, and Nanya Technology has also stopped related production lines; while ESMT's revenue mainly comes from these two types of memory products. It believes that the market underestimates the price support brought by the contraction of traditional memory supply, and ignores the situation in which manufacturers such as Micron, Samsung, SK Hynix, and SanDisk lock in profitability through long-term supply agreements and price floors.

Serenity criticized that the market, on the one hand, is selling off AI and memory industry chain companies that actually generate substantial cash flow, while on the other hand shifting funds to companies such as Walmart with a price-to-earnings ratio of about 47 times, and CrowdStrike with a forward price-to-earnings ratio of about 180 times. In its view, what the market is currently focusing on is not the free cash flow actually created by enterprises, but rather it has fallen into indiscriminate selling.