Serenity: The market is indiscriminately selling off the entire AI industry chain, with some storage stocks valued as low as 1.6 times their annualized price-earnings ratio.

Serenity noted in a post that the current market deleveraging has been severe, with investors indiscriminately selling off stocks related to the AI industry chain, and some companies’ share prices have even fallen back to levels seen before major orders and earnings expectations were met. Taking storage chip firm ESMT as an example, Serenity pointed out that the company has a market cap of around $2 billion, generated $526.2 million in gross profit and $330 million in net profit in the third quarter, with net assets of approximately $937 million, including net cash of about $740 million. Based on annualized current earnings, its price-to-earnings (P/E) ratio is only around 1.6x. Despite ongoing market concerns about a cycle peak, unsustainable earnings, and lack of competitive moats, the exit trend from DDR2 and DDR3 production lines is tightening supply. ESMT expects it may offset weakening consumer demand in the fourth quarter by raising average product prices. Serenity further noted that manufacturers including Samsung and Micron are gradually exiting DDR2 and DDR3 production lines, and Nanya Technology has also halted related lines; ESMT’s revenue is mainly derived from these two types of storage products. It believes the market has underestimated the price support brought by the contraction in traditional storage supply, and overlooked that firms like Micron, Samsung, SK Hynix, and SanDisk are locking in profitability through long-term supply agreements and price floors. Serenity criticized that the market is simultaneously selling off AI and storage industry chain companies that actually generate massive cash flow, while channeling funds to firms like Walmart (with a P/E ratio of around 47x) and CrowdStrike (with a forward P/E ratio of approximately 180x). In its view, the market is currently not focusing on the actual free cash flow created by enterprises, but is trapped in indiscriminate selling.