Despite a notable selloff mid-week, major US stock indexes remain close to all-time highs, buoyed by strong corporate earnings stemming from the AI investment surge and easing tensions related to the Iran conflict.
Micron’s stock has surged by 298% this year, and its quarterly earnings report on Wednesday, June 24, will provide key insights into whether the rise in data center investments and the subsequent profits in the semiconductor industry can keep delivering surprises.
“There’s been significant momentum lately,” remarked Andy Pratt, director of investment strategy at Burney Company. “This AI trend has persisted, and from what we observe with our revenue surprise indicator, there’s still plenty of energy left.”
Apple’s agreement to collaborate with Intel for chip design and manufacturing in the US may significantly aid the chipmaker’s turnaround strategies. This development has propelled the S&P 500 to a nearly 1% increase this week, positioning it for a second consecutive weekly gain.
In the meantime, the Philadelphia SE Semiconductor index has achieved a record high, currently up 7% for the week.
Seeking Assurance
The stakes are substantial. Micron’s earnings arrive at a time when valuations are high and investors are scrutinizing whether the rally has become excessive. Any signs of sustained demand and continued strength in AI-related expenditures could bolster investor confidence to maintain the rally’s momentum.
Micron’s earnings are “shaping up as a classic positive feedback loop,” noted Steve Kolano, chief investment officer at Integrated Partners. “This seems to be the prevailing trend. … The backlog and book to bill ratios for semiconductor firms indicate that demand is surging compared to chip production capabilities.”
Major technology companies have indicated that AI spending is not waning, projected to exceed $700 billion this year, an increase from $400 billion in 2025.
Macroeconomic Factors Persist
While the AI narrative continues to dominate market discussions, underlying macroeconomic issues loom. Next week, the Federal Reserve’s preferred measure of inflation will be released, along with a final reading of the first-quarter GDP. Both reports will serve as critical evaluations of US consumer health and economic growth.
Estimates for second-quarter earnings growth for the S&P 500 stand at 22.9%, down from 29.3% in the first quarter, according to data shared by Tajinder Dhillon, head of earnings research at LSEG.
Drew Matus, chief market strategist at MetLife Investment Management, indicated that robust equity markets have been a key support for consumers, and any factors that might disrupt the AI narrative or the upward trend in stocks are under careful observation.
“The effects have been both market-driven and macroeconomic,” he stated. “We’re genuinely concerned about the potential decline of the wealth effect and its implications.”
For now, the outlook is that the AI narrative remains strong, showing little sign of slowing down. Newly public SpaceX has reinforced this momentum, and Nasdaq’s inclusion of additional AI and chip infrastructure companies, such as Astera Labs and CoreWeave, will compel index funds to invest further.
“From my perspective,” said Burney’s Pratt, “you can continue to invest in these companies until proven otherwise.”
