Today I met with a veteran investor who argued that memory stocks are not cheap even at a P/E of 3. Below is an edited version of our conversation. Memory LTAs are basically meaningless. The best the LTAs being signed today can do is get customers to shoulder part of the memory makers' capex. Once prices fall, customers will gladly forfeit their deposits (prepayments) and walk away from the LTAs. Historically, whenever prices fell more than 60% from the peak, customers broke their LTAs even after signing them. So even if a 2027 shortage is certain and the stocks trade at a P/E of 3 on 2027 operating profit, 2028 operating profit is uncertain, which makes it hard to justify a higher valuation. He went on to argue that even if 2028 operating profit were certain, we would still have to account for 2029 operating profit. I pushed back and asked why the market doesn't discount TSMC the same way. Why does TSMC get such a high valuation? Wouldn't TSMC also take a big hit if the AI boom fades? His answer: the problem was how violently memory prices rose in the first place. If memory makers had raised prices in a healthy way like TSMC, it might be a different story. But because they hiked prices like a commodity, the market has no choice but to treat memory stocks like commodity stocks. Even if memory makers stay in shortage through 2030, he said, the market will price in the risk of oversupply in 2031. He closed his argument this way: even at 3x 2027 earnings, if memory prices fall in 2028 by enough to break LTAs, that 3x multiple on 2027 works out to 7.8 to 10x on 2028. So current valuations are not cheap.