Article published at 9:40 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Micron earnings knocked every expectation out of the park
- Cboe Volatility Index (VIX Index) responded by backtracking to below 18
- Apple followed through on price hikes
Micron’s extraordinary earnings last night lit a fire under markets across the world and particularly for memory chip makers. Micron, the largest chip maker in the U.S., crushed Wall Street’s expectations as data centers are wolfing down memory to meet the insatiable demand for AI. Yes, AI-fueled growth is unbelievably and unprecedently robust.
But let’s look at it this way: The folks selling the picks and shovels are in incredibly good stead. Those buying them still have to prove that the billions and billions of dollars they’re spending is worth it. In other words, don’t overthink anything.
The Cboe Volatility Index® (the VIX® Index) fell some 4% to below 18, indicating that the markets could be beginning to stabilize. May’s Personal Consumption Expenditures (PCE) Index results didn’t have much impact on the markets, with the headline rate at a seasonally adjusted 4.1% while the core rate, striking out food and energy, came in a 3.4%. Both were in line with Wall Street’s estimates.
Remember the PCE is the Federal Reserve’s most-watched measure of economic activity and consumer spending. The Fed’s tough talk on interest rates two weeks ago could lead to a hike in interest rates, but the CME FedWatch tool doesn’t map any measurable move toward one until October.
Micron’s earnings set a worldwide play for tech stocks after a few weeks of on-again/off-again love for the sector. Not only were Micron’s revenue and earnings off the chart, but expectations were well ahead of Wall Street’s initial expectations. There really wasn’t anything not to like. More on the results below.
In the early going, the tech-dominated Nasdaq Composite jumped better than 2.3%, led by Micron, which was advancing at a 19% pace ahead of the open. But once trading began, both the stock pulled back to a 9% gain and the index fell, reflecting this ongoing seesaw market. Other memory stocks joined the upward headway as Sandisk moved to the upside by 15.6%, Western Digital added 13% and Lam Research was higher by 6%.
The Dow Jones Industrials moved ahead by 0.48%, heading upward for the fourth time in five days, and the S&P 500 Index lost premarket momentum to hug the flat line. The Nasdaq and the S&P 500 are on pace for their best quarterly gains in six years. Meanwhile, more ships are passing through the Strait of Hormuz and WTI crude oil prices are slipping under and over $70.
Qualcomm shares leapt 11% after the semiconductor doubled up on its non-handset revenue projections to $40 billion, up from $22 billion.
Elsewhere, Apple’s shares are backtracking some 1% after the electronics giant followed through with last week’s talk that it will boost prices on many of its products. Indeed, they’re up – even meaningfully in some cases. The electronics industry “is facing an unprecedented challenge,” and “surge in demand for memory and storage,” the company said in a statement. “We have never seen a component price increase this much, this quickly.”
And this price hike might not be the last. Apple said it has “reached a point where we need to begin raising prices on a number of products.” Consider that a warning.
Back to Micron, here are the numbers that rocked the tech sector: revenues hammered expectations by nearly 16%, hitting $41.46 billion versus the $35.84 billion estimate. When you’re dealing with dollars in the billions, percentage gains in double digits are substantial. Net income of $28.24 billion is a whopping 100% over the previous quarter and a record over the tech giant’s 48 years in business. On an adjusted earnings per share basis, they reached $25.11, a whopping 20%greater than the $20.78 estimate.
But here’s the real kicker, gross margins – meaning how efficient is the company’s core production – more than doubled to 84.9%, compared with 39% in the year-ago period and marking another company record.
And there’s more: executives offered outsized forward guidance for the fiscal fourth quarter, at some $50 billion in revenues and per-share profit of $31. Analysts were tagging revenues of $43.2 billion and $25.31 per share.
As off the charts as these numbers are, they were sitting near their implied move of 13% in either direction. When a stock has outsized expectations on the moves and it still outpaces them to the upside you know those numbers are incredibly hard to beat.
Good trading!
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