The “HALO” trade, an acronym for heavy assets, low obsolescence, has emerged as a key focus for global investors backing companies benefiting from the US$1 trillion artificial intelligence boom. However, mounting concerns suggest this enthusiasm may be more a fleeting fad than a sustainable trend. The parabolic surge in the Philadelphia Semiconductor Index draws unsettling comparisons to past market bubbles, raising questions about whether the “pick-and-shovel” narrative truly justifies heightened risk-taking fuelled by momentum.
This tension is particularly evident among the three dominant global dynamic random-access memory (DRAM) chipmakers – Samsung Electronics, SK Hynix, and Micron Technology. These companies design and manufacture essential memory components crucial for computing and digital electronic devices. A central debate revolves around their valuation. Following a historic run, the trio appear expensive against net-asset value but inexpensive when weighed against analysts’ optimistic earnings forecasts. Chipmaking is historically subject to volatile boom-and-bust cycles.
Traditionally, investors favoured price-to-book as a more reliable barometer over price-to-earnings due to this industry volatility. However, HALO trade advocates challenge this view, championing “LTA” or long-term agreements. AI hyperscalers are increasingly signing three-to-five-year non-refundable contracts to secure essential chip supply for massive infrastructure build-outs, some with upfront payments. UBS estimates 20-30 per cent of DRAM shipments may now be covered by such agreements, prompting some analysts to project sustained profitability through the decade.
Yet, skepticism persists. Contract details are often scant due to non-disclosure agreements, leaving analysts to rely on estimates. Moreover, the frequency and volatility of past boom-bust cycles make a sustained, decade-long AI-fuelled super cycle hard to envision for old-school investors. The ultimate verdict on the HALO trade’s lasting power remains uncertain.
