Artificial intelligence euphoria reached unprecedented heights this week as two prominent chipmakers achieved market valuations surpassing $1 trillion. In a significant milestone for Micron Technology, the company’s stock soared past the trillion-dollar mark on Tuesday, marking its first-ever entry into this exclusive club. The following day, South Korean rival SK Hynix joined Micron in this financial achievement, fueled by an explosive demand for chips critical to AI memory.
Micron’s rapid ascent to the trillion-dollar threshold was particularly notable, occurring just 48 days after the company crossed the $500 billion mark. This remarkable growth trajectory outpaced major corporations including Meta, Amazon, Nvidia, Walmart, and Tesla, according to an analysis from The Wall Street Journal. In 2023, SK Hynix’s shares have surged by over 200%, further highlighting the intense market interest in AI-related technologies.
The frequency of companies hitting the once-rare trillion-dollar milestone is increasing, largely motivated by the soaring demand for artificial intelligence solutions. Since Apple first achieved this milestone in 2018, eleven U.S. companies have followed suit. Earlier this month, another heavyweight in the memory chip sector, Samsung, also reached a market valuation of $1 trillion.
Wall Street analysts anticipate continued expansion in the AI sector. Goldman Sachs has projected that earnings will grow by 24% this year, with half of that growth attributed to firms benefiting from investments in AI infrastructure. In a recent development, UBS analysts raised their price target for Micron to $1,625 per share from a previous target of $535. Following this news, Micron’s stock jumped by 19%, marking one of its top trading days in history, with another 2% increase the following day.
The broader market has also been buoyed by optimistic earnings forecasts. Analysts from Yardeni Research suggested that the S&P 500, which was at roughly 7,500 this week, could rally to 8,250 by year-end, a projection that represents the highest target among Wall Street analysts. Oppenheimer recently adjusted its target to 8,100, while major institutions like Deutsche Bank, Morgan Stanley, and Goldman Sachs raised their respective S&P year-end targets to around 8,000. With the S&P 500 already up nearly 10% this year, it would require an additional 6% rise to reach even the lowest of these predictions.
Goldman Sachs’ chief U.S. equity strategist emphasized that continued earnings growth should sustain the upward trajectory of the equity market. The latest earnings season has yielded the strongest profit growth among S&P 500 companies since 2021, driven primarily by the so-called “Magnificent Seven” tech firms, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla, which collectively outperformed earnings expectations significantly.
However, challenges persist for the markets. Analysts caution that the premium on AI-linked stocks may raise their future performance hurdles. Additionally, geopolitical tensions, particularly the ongoing conflict in Iran, may hinder growth and lead to tightening financial conditions reminiscent of past market downturns. Rising bond yields and an upcoming interest rate decision by the Federal Reserve on June 17 further loom as potential obstacles, with futures markets predicting a 60% likelihood of an interest rate hike before the year concludes. This scenario could have implications for stock valuations and corporate profits moving forward.
