All eyes on Micron earnings!

00:00:00: Technology stocks are being battered with the hottest membership, stocks unsurprisingly printing the biggest daily pullbacks.

00:00:07: Massive AI spending increasingly financed by debt doesn't bode well with prospects of high interest rates moving forward.

00:00:14: Today, Micron is preparing to announce its latest quarterly results.

00:00:19: They're expected strong but will that be enough?

00:00:22: stop the bleeding across technology and AI stocks?

00:00:27: So welcome to Swisscoats daily market talk.

00:00:30: It's Wednesday, the twenty-fourth of June.

00:00:32: I'm Ipekos Kardeshkaya.

00:00:34: We will talk about technology and rest but before we do And as always please keep in mind that opinions are my own.

00:00:42: This is not financial advice.

00:00:50: So technology sucks, especially ones that spiked in a parabolic move over the past few months are being battered today due to one their massive AI spending increasingly financed by debt with also an unclear path to profitability for some of them and two The prospects off higher interest rates.

00:01:11: That will increase the cost of debts into coming month.

00:01:15: Not that distress.

00:01:16: the unease in US technologies suck started posterior too the latest federal reserve announcement And last week, that came in.

00:01:23: more hawkish than expected, as the new Fed chair Mr.

00:01:27: Kevin Warsh put price stability at the center of his statement and the dot plot also suggested that half of Federal Reserve members were looking for one interest rate hike this year to tame inflationary pressures that spike past a four percent level last month.

00:01:44: before the headline figure you're done the Fed's two percent inflation target.

00:01:55: Now, I highlighted earlier that the technology stocks have unusually outperformed their non-technology peers during the latest Federal Reserve tightening cycle.

00:02:03: And that was thanks to a nascent AI and ample free cash flow That big technology had in there hands.

00:02:10: But since then The Big Technology has been issuing hundreds of billion dollars worth Of debt To finance Their huge AI infrastructure spending.

00:02:19: And obviously the latter makes these companies These big technology companies doubly Vulnerable to do rate environment because first higher rates increase the borrowing cost and second technology companies Valuations are based on their future revenues discounted.

00:02:34: today mathematically higher discount race way on valuations.

00:02:38: And well, it's been a while that rising valuations across the technology companies have being calling for caution AI related Technology infrastructure and services or short promising but that promise has been very Very Ampli price in as well.

00:02:54: to stay polite.

00:02:55: So the size of the drawback yesterday was pretty impressive, yes but totally understandable as well when looking at the preceding probiotic rally in many off-the-stock prices.

00:03:04: The Korean Cosby Index for example fell ten percent yesterday.

00:03:08: that was one of the biggest one session fall of his history But it rallied more than three hundred per cent since April.

00:03:14: two thousand twenty five on the back of Two membership makers only That found themselves In a probably prolonged boom cycle thanks booming demand for high bandwidth memory chips using AI accelerators and data centers.

00:03:30: And at one point two companies, Samsung & SK Hynex accounted for more than half of the Korean's KOSPI index gains and became increasingly dominant within the benchmark.

00:03:41: Samsung's peer ratio went from below ten for the past two decades to nearly sixty.

00:03:47: In comparison, the KOSPI's equal-weighted index gained much less than that as many Korean companies spent last year simply trying to keep pace with a weaker Korean one.

00:04:00: Rising input costs and sluggish domestic demand.

00:04:03: Their earnings growth never matched exuberance seen in the smile conductors sector nor their attractiveness for global investors.

00:04:12: The KOSPI Index was down when I sat at my desk this morning By around two and a half percent.

00:04:17: it's moving very, very fast.

00:04:19: And the rebound comes from news that Samsung is now considering to buy back shares.

00:04:25: But the latter doesn't really change The problem at its core Evaluation.

00:04:29: this high and volatility This strong are never good for healthy and sustainable upward trend.

00:04:36: So I'm afraid there risk of further downside correction in Korean Cosby Index Pre-Rail In the US, now as a hundred tank more than three percent yesterday.

00:04:45: The hottest memory chips stocks like Micron and Sandex both fell more than thirteen percent in a single session while losses across the magnificent seven stocks remained more contained then that together they lost around one point thirty-seven percent in yesterday's trading sessions.

00:05:02: Now futures are slightly up this morning but reasons that triggered recent unease of stress in technology stocks didn't go away.

00:05:10: The US two-year yield console is near the highest levels in one half year.

00:05:15: While a benchmark for European ten-year yields is falling due to oil prices, U.S.

00:05:20: create extended retreats to below seventy three dollars per barrel level this morning and let her limit losses across European indices that are less exposed to technology and

00:05:30: A.I.,

00:05:31: making investors think about a rotation towards less technology exposed and more cyclical.

00:05:37: pockets of the market where valuations remain much less, more cheaper compared to technology peers.

00:05:43: In this respect, the FTSE hundreds for example outperformed its European and US peers yesterday by closing the session near flat.

00:05:50: that despite it brought a lot in energy and mining stocks in the UK.

00:05:55: Indeed, the bursting speculative bubble in metal prices also halted the minus probable surge earlier benefiting grandly from the rise in gold prices, lost more than a third of his value since January peak as Gold fell nearly thirty percent.

00:06:17: Moving forward, things are not looking great for precious metals.

00:06:20: Unfortunately the downside risk prevailed as rising US yields increased opportunities because of holding non-interest bearing metals and way on their prices.

00:06:30: now weather gold could be an exception and attract inflows in case a severe AI technology led market meltdown is yet to seen.

00:06:40: The yellow metal has suffered itself from speculative bubble remember which burst late January still will build a long-term trend base for massing safe haven flows comfortably if things get ugly across risk assets.

00:06:54: But the major question today is, Is the recent technology sell off the beginning of potential AI bubble burst or just another correction on way up?

00:07:05: I can say that some stocks scream for correction to return to healthier and more down-to-earth levels.

00:07:12: Today, Macron is due to release his latest quarterly earnings after the US closing bell – expectations are sky high obviously!

00:07:20: We will probably hear strong numbers But that's already priced in because my current was trading past the twelve hundred dollar a share just two days ago versus less than one hundred and twenty dollars shared.

00:07:36: A year ago, That is it tenfold increase ladies and gentlemen?

00:07:40: yes so The company is trailing.

00:07:42: peer ratio today has spiked to nearly fifty times its earnings which Is very high for memory chip business reflecting the explosive growth expectations attached To the AI memory boom While on the other hand it's full with PE ratio is closer to around eight-to ten times, implying that analysts expect earnings to surge over their coming quarters and bring put that gap between the two, between the P and forward P ratios striking.

00:08:13: It suggests investors are not paying for today's earnings from micro but for tomorrow's expected profits assuming that the current boom in high bandwidth memory demand from AI centers will be

00:08:25: sustainable.".

00:08:26: Very few are asking what if it is non-sustainable?

00:08:29: What if new technologies more efficient AI models different architecture etc.

00:08:34: reduce demand for memory

00:08:36: needs?".

00:08:36: That would be bad.

00:08:37: so My micro's results today matter far beyond the company itself.

00:08:41: Strong, strong numbers and confident guidance from the company will obviously reinforce the view that AI related spending remains robust and could eventually throw a floor under their recent membership sell-off.

00:08:54: we saw over past few days and can support a broader rally in smile conductors but given already very rich valuations across to AI & Smile Conductors anything less than absolutely spectacular with full short of the spectacular rise of a stock price and could justify further pullback in memory chip prices.

00:09:14: And that pull back could be impressive, as impressive as the rally that we saw preceding potential correction.

00:09:21: So In summary The risk reward is asymmetric n square.

00:09:24: tricky time to release earnings.

00:09:26: To be honest with you, when market is calling for a correction and the valuation looks so sky high in everybody's talking about potential bubble in AI and smite conductor sectors as such microns earnings And more specifically The markets reaction to migrants earnings could impact the technologies next direction whether investors would stay or they will just go again.

00:09:48: some stock screen full correction to return to healthier and more down-to-earth levels which rotation toward less-richly valued and non-technological pockets of the market, also backed by geopolitical.

00:10:11: This episode of Market Talk has been helpful, and it's been insightful to you.

00:10:16: So please do not hesitate to leave your comments, reactions on your questions below as usual!

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00:10:41: So I will meet again tomorrow after the market earnings and until then good day trading!