The selling in AI, chips, and data center names got heavier today, the second hard session in a row.
Is it risk-off?
Risk-off is everything red, money running to safety, Treasuries bid.
That wasn't today. The broad market is holding up better than the tech heavy indices. Rates are higher on the week, the dollar is bid, and gold has been weaker. This is not the dynamic of de-risking.
What we do have, is a market that is long the AI chip and hyperscaler trade, and skittish.
The selling started overnight in Asia. Korea's market fell 10% and its big memory makers dropped more than 12%. It rolled through Europe's chip-equipment names, and then into the US.
So, the trading day moved west, with some of the biggest gainers on the year giving back some ground.
The question: Is this sniffing out a crack in the demand armor or is this just a positioning event, shaking out unconvicted, late-to-the-party longs?
It looks like the latter, and not coincidentally, it's happening ahead of Micron earnings tomorrow (which come after the close).
With that, remember what last Micron earnings looked like. It was a monster.
In the March report, Micron's revenue nearly tripled from a year earlier, to almost 24 billion dollars. Gross margins doubled, from the high 30s to the mid 70s. Earnings per share went from $1.41 to $12.07(!).
That was the memory industry's version of Nvidia's (May 2023) "moment," — a business vaulting to a different scale of revenue and profitability.
The stock has since done this …
So, with this extreme move in Micron (and memory and data storage) over the past few months, is the market positioning for a disappointing report?
Probably. But it's hard to imagine a demand or supply signal coming from this earnings report — other than what we already know.
Micron, and its two counterparts in the memory oligopoly, SK Hynix and Samsung, are sold out. Demand is already contracted out years in advance. And new memory capacity is in process, but takes years to build.