Valuing the Moat: Newmont's Cyclical Bet vs. Micron's AI Engine

The returns for these two giants in 2025 tell a clear story of two different investment engines. Newmont's shares surged by more than 160% last year, a direct function of gold's powerful rally. That surge was fueled by a historic run for the metal itself, which saw a +27% increase in 2024 and is forecast to continue climbing. For a gold miner, this is a classic cyclical bet-when the price of the metal rises, so does the stock, often dramatically. Yet, as the evidence notes, this doesn't guarantee future success, and the company's five-year return of 69% lags both gold and the broader market.

Micron's story is fundamentally different. Its shares soared 239.1% in 2025, a move driven not by a precious metal cycle but by a structural technological shift. The company is a key beneficiary of the artificial intelligence boom, where demand for its memory chips has become a critical bottleneck. This isn't a fleeting trend; it's a fundamental reordering of the digital economy, with demand from AI data centers continuing to outstrip supply and creating a multi-year shortage. The result is a powerful, secular growth engine.

For a value investor, this sets up the core question: which story offers a wider, more durable economic moat? Newmont's moat is the price of gold, a variable that can swing wildly on geopolitical and monetary policy shifts. Its production growth is modest, with mined gold output averaging near zero annual change in recent years, suggesting supply constraints are limited. The company's fortunes are tied to a commodity whose price is ultimately a function of global debt and currency faith.

Micron, by contrast, is building a moat around its technology and capacity. Its position in the AI supply chain is not a cyclical event but a structural demand driver. The company is investing in next-generation DRAM and NAND, and its ability to serve high-margin AI workloads creates a potential for sustained pricing power and expansion. The memory shortage is a tangible sign of this demand strength, and it points to a longer compounding horizon than a gold price rally.

The bottom line is that while both stocks have delivered spectacular returns, the source of those returns shapes the long-term outlook. Newmont's 160%+ rally is a bet on a cyclical commodity price. Micron's 239% surge is a bet on a structural technological shift. For an investor focused on intrinsic value and durable compounding, the latter presents a more compelling and potentially wider moat.

Assessing the Economic Moat and Owner Earnings

The durability of a company's earnings power is the ultimate test for a value investor. It reveals whether the business can compound capital over decades or is merely riding a wave. For Newmont and Micron, the evidence points to two distinct models of owner earnings.

Newmont's earnings are a direct function of the gold price, a variable that can swing on geopolitical and monetary policy shifts. The company's fundamental strength, however, is being tested by a potential ceiling on its own supply. Despite a surging gold price, global mined gold production has shown remarkable stability, with averaged a near zero annual y/y change between 2018 and 2024. This suggests the industry may be nearing a plateau, where rising costs and declining reserves limit expansion. The company's own production growth is modest, which raises a critical question: if supply is capped, how much of the price rally can be captured by higher margins versus simply being passed through? The evidence notes that while new projects and ramp-ups should provide continued support, the overall trajectory points to a gradual plateau. For owner earnings, this creates a vulnerability. The moat is wide in terms of gold's safe-haven appeal, but the width of the earnings stream depends on a commodity whose supply is inherently constrained.

Micron's story is one of capturing a severe, structural shortage. The company is not just benefiting from a cyclical upturn but is at the center of a memory chip shortage driven by AI. The demand from AI data centers is so intense that it is materially outpacing supply, a dynamic that analysts say is different from past boom-and-bust cycles. This is not a temporary imbalance; it is a permanent, strategic reallocation of the world's silicon wafer capacity toward high-margin AI solutions. The result is a powerful tailwind for owner earnings. As one analyst noted, demand for RAM chips exceeds supply by 10%, and prices are surging. This structural demand outstrips supply, which creates the potential for higher average selling prices and sustained profitability well beyond a typical cycle.

The bottom line is that Micron is building a moat around its technology and capacity, while Newmont's moat is the price of a commodity. For owner earnings, the semiconductor shortage presents a more durable and potentially wider economic engine. It is a shift from a cyclical commodity bet to a structural demand driver, where the company's ability to serve high-margin AI workloads can compound capital for years.

Valuation and the Margin of Safety

For the disciplined investor, the margin of safety is the essential buffer between price and intrinsic value. It is the difference between what you pay and what you believe a business is truly worth, and it is the cornerstone of long-term compounding. When we examine Newmont and Micron through this lens, the market is pricing in two very different stories of future success.

Micron's valuation tells a tale of extraordinary growth being priced in. As of year-end, the company's trailing PEG ratio stood at 0.13. This is a remarkably low figure, reflecting a price-to-earnings multiple of 26.85 against an earnings-per-share growth rate of 203.7%. The market is clearly rewarding Micron for its current explosive expansion, which is a direct result of the AI-driven memory shortage. The evidence shows that demand for RAM chips exceeds supply by 10%, and prices are surging. The PEG ratio, while historically low, is a function of that hyper-growth. The key test for Micron's margin of safety is whether the company can successfully expand its capacity to meet this demand and maintain its pricing power. The market is pricing in this ability, but the execution risk is high. The company must navigate complex capital expenditures and global supply chains to convert this structural shortage into sustained owner earnings. The low PEG ratio, therefore, represents a narrow margin of safety that is contingent on flawless execution.

Newmont presents a different picture. The stock, up sharply this year, is still viewed by some analysts as modestly undervalued, with a narrative fair value near $105 against a recent close around $99.70. This suggests a potential margin of safety based on current earnings power. Yet, this apparent discount is contingent on gold prices holding their recent highs and the company's modest production growth. The company's intrinsic value is not built on a wide, durable moat of its own making but on the price of a commodity. The market is not pricing in a structural shift for Newmont; it is pricing in the continuation of a cyclical rally. This creates a narrower moat and less certainty for long-term intrinsic value. The margin of safety here is thinner because it depends on a variable external factor-the gold price-whose future trajectory is less predictable than a company's own capacity expansion.

The bottom line is that both companies offer a margin of safety, but they are of different widths and depend on different foundations. Micron's safety is tied to its ability to build and operate more factories, a tangible, company-specific challenge. Newmont's safety is tied to a global monetary and geopolitical cycle, a variable far beyond its control. For a value investor, the margin of safety is not just a number; it is a measure of the business's own durability. In that light, Micron's bet on expanding capacity to solve the world's memory problem offers a more actionable and potentially wider moat than Newmont's bet on the gold price.

Catalysts, Risks, and Long-Term Watchpoints

For the patient investor, the margin of safety is not a static number but a dynamic landscape shaped by future events. The catalysts and risks for Newmont and Micron are fundamentally different, reflecting the nature of their underlying businesses.

For Newmont, the primary catalyst is the trajectory of the gold price itself. The market is pricing in a continuation of the powerful rally that drove shares up more than 160% in 2025. Analysts forecast that gold could break above $3,300 per ounce in 2025, with the underlying thesis being that massive global debt and monetary stimulus will continue to inflate the currency. The company's long-term value, however, depends on more than just this external variable. Its ability to compound capital is constrained by a near-zero average annual production growth, as mined gold output has averaged near zero in recent years. The key watchpoint is whether new projects can translate the high-price environment into tangible production gains and higher margins, or if the company remains a pure price-taker in a capped supply industry. The major risk here is a reversal in the gold price cycle. If central bank policy shifts or confidence in fiat currencies stabilizes, the entire foundation of the stock's rally could erode quickly.

Micron's catalysts are more company-specific and tied to execution. The immediate tailwind is the severe, structural memory shortage. Analysts expect DRAM prices to rise another 40% in the coming quarter and do not foresee a price drop in 2026. This is driven by AI demand that is materially outpacing supply and creating a reallocation of global manufacturing capacity. The key watchpoints are the duration of this imbalance and, more critically, Micron's ability to expand capacity to meet it. The company is investing heavily, with a new factory in Idaho slated to come online in 2027. The success of this expansion will determine if the company can capture the full value of the shortage or if it merely fuels a new cycle of oversupply. The major risk for Micron is the cyclical nature of semiconductors. The industry has a long history of boom-and-bust cycles, and the current AI-driven demand surge could eventually lead to a glut as new capacity comes online. The company must navigate this transition without being caught on the wrong side of the cycle.

In essence, Newmont's future is a bet on a macroeconomic trend, while Micron's is a bet on a company's engineering and capital allocation prowess. For a value investor, the margin of safety is wider when it is anchored in a business's own durable capabilities, not the whims of a global monetary cycle. Micron's path to compounding is clearer, but its execution is the only thing that can turn a structural shortage into lasting owner earnings.