MU's golden explosion: $50B guide crushes bears, ignites AI rally, and sparks the great rotation

Ok - let’s quickly look at what happened yesterday. It was a day of pure churn...a day where investors were trying to make sense of Tuesday’s semiconductor massacre. Recall that traders took the entire AI complex out behind the woodshed and kicked the (fill in the blank) out of it.

The narrative was simple — AI’s spending had peaked, the hyperscalers were spending money like drunken sailors. Data centers were overbuilt all while demand is about to roll over. That was the story, that is what they wanted you to believe, that was the bear case. Loud and confident. Ok, so what happened yesterday.

The Dow added 182 pts, the S&P lost 7 pts, the Nasdaq gave up 110 pts, the Russell added 15 pts, the Transports lost 22 pts, the Equal Weight S&P rose by 60 or 0.7% and this is important – just give me a min while the Mag 7 gave up 270 pts.

Now on the surface – it looks like a boring day…not much to discuss…..but you would be wrong….notice the Equal Weight S&P – it gained 0.7% - outperforming all the other indexes – suggesting that the majority of the S&P names ended the day higher. And that feeds directly into my ongoing rotation story – yes money came OUT of the stretched tech sector – semi’s down again - SOXX down 0.3%, (which is laughable because the group is still up 99% ytd), Cyber -0.5%, Software down 1.15%, Ark Web down 1.6% and where did that money go?

It did NOT go to the straight cash account. It went INTO the Industrials up 1.15%, Consumer Staples up 0.9%, Healthcare up 0.8%, Utilities up 1%, Basic Materials up 0.6%. Some of it also went into the beaten-up treasury market – the TLT up 1.4% while the TLH gained 1.1%. And some of it went into the SMID (Small and Midcaps) the IWM gained 0.5%, the IJT up 1.25%, and the IJR gained 1.2%.

And this speaks to my ongoing narrative about building a well-diversified portfolio with a strong foundation and when stocks – or in this case tech stocks - run too far, too fast, a pullback almost always follows –And I’d rather be BUYING tech on the down days NOT the up days. Remember - When one area gets stretched beyond reason, money doesn’t simply evaporate—it migrates. Just like the money in NYC, Chicago, LA or Portland – it will go to where it gets treated best – Hello WPB, Hello Austin! (Couldn’t help myself!)

And last night was a kind of super bowl for the AI trade, as investors waited on the edge of their seats for the MU earnings call.

In yesterday’s note I said this

“Everything comes down to Micron. ……We want proof. Proof that memory demand remains strong, proof that hyperscaler spending remains intact, proof that AI infrastructure investment is still accelerating and proof that the trillions of dollars being spent across the industry will produce real returns. A beat-and-raise will cause a celebration…..anything less will pour gasoline on yesterday’s selloff”.

And then the MU CEO – Sanjay Mehrotra – walked (confidently) onto the stage and completely slaughtered the bears…. He blew the whole place up and brace yourself – because this changes the whole story…..

Ready? Because these numbers are ridiculous…..Revenue of $41.46 billion against $35.59B expected — up 346% YEAR OVER YEAR. Read that again because it is not a type. THREE HUNDRED FORTY-SIX PERCENT. That’s not just growth, that’s an explosion. Adjusted EPS of $25.11 vs. the $20.60 the street was expecting. Gross margins of 84.9% — a company record, up from 74.9% the prior quarter and 39% a year ago. That’s not a beat. That’s a VERY VERY ‘happy ending’!

And then came the knockout punch – He told investors that supply remains tight thru 2027, that Q4 revenue’s look to be coming in at around $50 billion, plus or minus a billion! The street was at $42.9B. They guided SEVEN BILLION dollars above consensus. That is locked in. Sold out. And underneath it all -he has sixteen strategic customer agreements representing roughly $100 BILLION in minimum contracted revenue and the bears got mugged again!

So, when I said a ‘beat and raise will cause a celebration’ – I was wrong – it was a stampede. In the after-hours session MU gained 13% and this morning in the pre-mkt session it is up an additional 5% (total of 18%) trading at $1240, this after kissing and then penetrating the old high at $1213.

But here’s the part I want you to understand…. This wasn’t just about Micron. The QQQ immediately ripped 1.5% after the close. Nvidia. AMD. Broadcom. The entire AI ecosystem caught fire. Because one earnings report didn’t just confirm what the bulls knew - it challenged the entire AI spending narrative. And all those CNBC personalities that were negative on it yesterday on TV – well let’s just say they might just need a colonoscopy.

On the back of the rally in treasuries – we did see yields retreat just a bit…. The 2 yr is at 4.14% down from 4.2%, the 10 yr is at 4.40% down from 4.5% and the 30 yr is at 4.85% down from 5%.

Meanwhile, WTI settled at $70.34, down 3.92% and this morning it is down another 80 cts at $69.43 - it’s lowest since early March. The price gains that we saw due to the conflict have basically evaporated as the peace talks make progress and the Strait of Hormuz fear premium evaporates. Trump was on Truth Social - going after the oil companies for not passing the savings to the pump - said he’s told the DOJ to look at “price gouging.” – Regular gas is now below $4/gal – in Florida, I’m paying $3.80 – But here’s the important part - falling oil prices helps to cool inflation and that’s a positive.

Gold, meanwhile, cracked $4,000 for the first time since November and this morning it is down another $22 at $3975. Higher yields and a firmer dollar took the shine off the safe-haven trade as the tech rout earlier in the week unwound. If we fail to hold right here, then we could see gold move even lower and like I said yesterday- $3500 would not be out of the question.

Eco data today includes Personal Income & Personal Spending – both expected to be UP, the third revision to 1Q GDP – expected to remain at 3.5% and the all important May PCE report…and we discussed this…it is expected to be bit hotter than last month – but the fall in oil prices has NOT impacted the May report – it will impact the June and July reports – so my guess is that no matter what it is – we can easily explain it away as an ‘outlier’.

Overnight the Kospi – rose 5.4% - taking back some of Tuesday’s losses. European markets are all higher…. Up between 0.4% - 0.9%.

US Futures are on fire…. Dow futures up 128 pts, S&P’s up 52 pts, the Nasdaq is up 685pts while the Russell is up 4 pts.

The S&P closed at 7358 down 7 pts…The pre-mkt action says all you need to know….the TECH trade is not dead at all…..

Yesterday - JPM raised their year end S&P target to 7800 – which is about 6% higher from here. They citied improving geo-politics and strong earnings to support their call.

The VIX is down 3.5% at $18 and SpaceX is up 3.8% at $160.50.

Risotto alla milanese

Micron’s headquartered in Boise, but the chips that matter come stamped with saffron-gold margins - 84.9% - the richest in the company’s history — so tonight we’re making the dish that turns gold into dinner: Risotto alla Milanese. It’s the saffron that makes it glow, just like those margins at MU.

For this you need – the Arborio rice, chicken stock*, saffron, chopped onion, dry white wine, butter, fresh grated parmegiana cheese and bone marrow – get it at the butcher.

*Some people us beef stock instead – I use chicken stock.

Start with a good warm chicken stock simmering on a back burner — you’ll need it ladle by ladle.

In a heavy pot, melt butter with a little bone marrow and a finely chopped onion until soft and translucent — don’t brown it. Add the Arborio rice and toast it for two, three minutes until the edges shine. Hit it with a splash of dry white wine and let it cook off.

Now the patient part is where you can’t rush it. Add the hot stock one ladle at a time, stirring, letting each one absorb before the next.

Take a good pinch of saffron and let it bloom in a bit of the hot stock. Stir it in, now - watch it turn that beautiful gold. After about 18 or 20 mins the rice goes creamy but still has a bite at the center, al dente.

Take it off the heat, beat in a generous knob of cold butter and a big handful of grated Parmigiana — this is known as the mantecatura — that’s what makes it creamy and silky. Salt to taste, plate it loose so it spreads like a wave.

Patience, richness, and a little gold. Sounds like a Micron quarter to me.