Investors are seeking signs that the U.S. stock market rally fueled by artificial intelligence has more life left in it, and the upcoming Micron Technology earnings will check the pulse of chip demand to see if it is still accelerating.
Despite a sharp mid-week selloff, major U.S. stock indexes are hovering near all-time highs, supported by robust corporate earnings driven by an AI investment boom and relief from the Iran war. Micron’s shares are up 298% this year, and the memory chip maker’s quarterly report on Wednesday, June 24, will help investors gauge whether the surge in spending on data centers and the resulting profits generated across the semiconductor sector can continue to surprise to the upside.
“There’s been a lot of momentum here recently,” said Andy Pratt, director of investment strategy at Burney Company. “This AI trend is something that’s continued, and honestly, what we see with this revenue surprise signal that we monitor is there’s still a lot of juice.” Apple has agreed to partner with Intel to design and manufacture chips in the U.S., which could significantly boost the chipmaker’s turnaround efforts. That helped to lift the SP 500 nearly 1% so far this week, on pace for a second weekly gain. Meanwhile, the Philadelphia SE Semiconductor index hit a record high and was last up 7% for the week.
LOOKING FOR REINFORCEMENTS
The stakes are high. Micron’s earnings come at a time when
valuations are elevated and investors are questioning whether
the rally is overextended. Any indication of underlying demand
and continued AI-related spending strength could give investors
confidence to keep stoking the rally.
Micron’s earnings are “setting up as a classic positive feedback
loop,” said Steve Kolano, chief investment officer at Integrated
Partners. “That really seems to be kind of the only game in
town. … If you look at the book to bill of semiconductor
companies right now and the backlog, the demand is just through
the roof in relation to chip capacity.”
Big Tech has signaled that AI spending is not slowing, set
to rise past $700 billion this year from $400 billion in 2025.
MACRO BACKDROP STILL LOOMS
Although the AI narrative has dominated markets, underlying
macroeconomic concerns remain. The Federal Reserve’s preferred
inflation measure is due next week. So, too, is a final reading
on first-quarter GDP. Both reports will provide checks on the
health of the U.S. consumer and economic growth.
Second-quarter earnings growth for the SP 500 is estimated at
22.9%, down from 29.3% in the first quarter, according to data
provided by Tajinder Dhillon, head of earnings research at LSEG.
Drew Matus, chief market strategist at MetLife Investment
Management, said strong equity markets have been one of the main
supports for consumers, and anything that challenges the AI
trade or the continued rise in stocks is being closely watched.
“It has not just been market effects but macroeconomic
effects at this point,” he said. “We’re definitely worried about
the wealth effect going away and what that might mean.”
For now, the consensus is that the AI trade remains intact, with
little sign of slowing. Newly public SpaceX has reinforced that
momentum, and Nasdaq’s inclusion of more AI and chip
infrastructure names like Astera Labs and CoreWeave will force
index funds to buy in.
“The way I would view this is,” said Burney’s Pratt, “you
could continue betting on these companies kind of until proven
otherwise.”
(Reporting by Laura Matthews in New York; Editing by David
Gregorio)
Source: Khaleej Times