Investors in the U.S. stock market are closely monitoring the upcoming earnings report from Micron Technology, looking for clues about the health of chip demand and the sustainability of the recent stock rally driven by artificial intelligence (AI). Despite a notable selloff mid-week, major stock indexes are maintaining positions near their all-time highs, buoyed by strong corporate earnings linked to an AI spending boom and a sense of relief from ongoing geopolitical tensions.
Micron has seen its share price soar by 298% this year, leading to heightened expectations for its quarterly report scheduled for June 24. This report is expected to provide insight into whether the frenetic growth in data center investments and semiconductor sector profits can continue to exceed market expectations. According to Andy Pratt, director of investment strategy at Burney Company, the momentum appears strong. He noted, “This AI trend is something that’s continued… there’s still a lot of juice” left in the market.
Recent developments have been favorable, including a partnership agreement between Apple and Intel to design and manufacture chips in the U.S. This collaboration could potentially enhance Intel’s turnaround efforts and has contributed to a nearly 1% increase in the S&P 500, setting the stage for a second consecutive weekly gain. The Philadelphia SE Semiconductor index has also hit a record high, reflecting a 7% increase over the week.
As Micron’s earnings approach, the stakes are elevated. Investors are grappling with high valuations while questioning whether the rally might be overextended. Positive indicators regarding demand and sustained AI-related spending could provide the necessary confidence for investors to continue supporting the market’s upward trajectory. Steve Kolano, chief investment officer at Integrated Partners, described the situation as “setting up as a classic positive feedback loop,” emphasizing the strong demand for chips relative to production capacity.
Big Tech companies have also indicated that their AI spending is set to soar past $700 billion this year, a significant increase from $400 billion projected for 2025, further fueling concerns about demand in the semiconductor sector. However, underlying macroeconomic issues linger. The Federal Reserve’s favored inflation measure is set for release next week, alongside a final estimate of first-quarter GDP, both of which will serve as barometers for the health of consumer spending and overall economic growth.
While second-quarter earnings growth projections for the S&P 500 have dipped to 22.9%, down from 29.3% in the first quarter, investor sentiment remains relatively optimistic about the AI narrative. Drew Matus, chief market strategist at MetLife Investment Management, noted that robust equity markets have been a backbone for consumer confidence. He cautioned that any threats to the AI-driven market or stock price increases are being closely scrutinized, especially as concerns about the potential decline of the “wealth effect” loom.
The overall picture suggests that the momentum supporting the AI trade remains intact, with recent public listings like SpaceX reinforcing this trend. Furthermore, the Nasdaq’s inclusion of additional AI and chip infrastructure names, such as Astera Labs and CoreWeave, will likely compel index funds to increase their investments. As Pratt of Burney Company stated, there seems to be an ongoing opportunity to invest in these companies “until proven otherwise.”
