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 centres 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 US, which could significantly boost the chipmaker’s turnaround efforts. That helped to lift the S&P 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 US$700 billion this year from US$400 billion in 2025.
Marco backdrop still looms
Although the AI narrative has dominated markets, underlying macroeconomic concerns remain. The US 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 US consumer and economic growth.
Second-quarter earnings growth for the S&P 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.”
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