NAS100 slips with memory chip makers and SpaceX staying in the spotlight

NAS100 Analysis

Wall Street faces a challenging environment amid persistent inflation that has led to a hawkish Fed shift, with the updated median projection now suggesting a rate hike within the year ^[1], matching market expectations. At the same time, geopolitical volatility lingers amid uncertainty over a lasting US-Iran deal and control over the Strait of Hormuz, while risks to transit remain after fresh attacks on commercial ships. ^[2]

Wall Street's ultimate anchor remains the AI trade, with memory chips at its epicentre as Micron and SanDisk lead the Nasdaq 100's performance this year. Yet conviction is starting to fray under the weight of sky-high valuations and growing anxiety that massive infrastructure spending will trigger a classic cyclical oversupply. Those fears were amplified by a Bloomberg report that Meta Platforms is exploring ways to offload excess compute capacity ^[3], alongside news that legendary investor Michael Burry has taken a short position against Micron. ^[4]

Samsung, one of the world's three High Bandwidth Memory makers alongside SK Hynix and Micron, said it expects a surge in revenues and profits in the second quarter ^[5]. However, markets accustomed to blockbuster financials were not satisfied, pushing Samsung and other chip stocks lower.

With concerns over memory chip demand and AI proliferation persisting, NAS100 drops today. Geopolitical uncertainty and Fed rate hike bets add to the negative forces. As a result, the tech-heavy index breaches the EMA200, leaving it vulnerable to deeper declines. However, the path of least resistance remains toward new all-time highs.

Such concerns and pullbacks are understandable given lofty expectations and valuations, but this looks more like tactical repositioning than a strategic shift. Memory chip makers are experiencing eye-watering growth, with Micron expecting gross margins of 86% and revenue growth above 340%. AI proliferation cannot happen without memory and the severe shortages are driving unprecedented demand that upends the industry's cyclicality. Micron's CEO alluded to these dynamics, noting that the company does "not have line of sight" as to when memory supply will catch up with demand, pointing to protracted shortages and high prices. ^[6]

Memory will remain in the spotlight as South Korea's SK Hynix moves closer to a $28 billion US listing ^[7] that could come as early as this week. IPOs are another tailwind for Wall Street after the blockbuster listing of Elon Musk's SpaceX, with the stock expected to enter the Nasdaq 100 today. ^[8]

Moreover, there has been a pullback in Fed rate hike bets recently after poor NFP data and as traffic through the Strait of Hormuz has picked up following the US-Iran MoU, pushing oil prices lower. This eases fears over the inflationary impact, giving the Fed breathing room. Chair Warsh alluded to such a shift at the ECB Forum last week, saying that "inflation risks have come down". ^[9]