AI trade is back on given magnitude of upside at Micron, says Silvant Capital's Sansoterra

Core Viewpoint - The demand for chipsets, particularly from Micron, indicates that the AI trade is robust and continues to thrive, with significant growth potential in the memory sector [1][3][4]. Group 1: Micron and AI Demand - Micron's current demand and contractual obligations suggest that the fundamentals of the AI trade remain strong, alleviating concerns among traders [2][3]. - The company is projecting a compound annual growth rate (CAGR) of over 40% for the next few years, which is unprecedented in the memory industry, indicating exceptionally high demand [3]. Group 2: Free Cash Flow and Capital Expenditures - Free cash flow is highlighted as the most critical factor for funding capital expenditures (capex), with large-cap companies managing to cover 80-90% of their capex through operational cash flow [5][7]. - Companies that can fund their growth through free cash flow are likely to receive higher valuations compared to those that rely on debt [8]. Group 3: Market Position of Major Players - Major players in the tech industry, such as Google, Amazon, Microsoft, and Nvidia, are expected to continue experiencing strong demand due to their financial capabilities to support growth [9][10]. - The market currently favors companies with solid cash flow for funding expenditures, as opposed to those that need to incur debt, reflecting a preference for lower risk in the AI sector [9].