While AI's economic contributions are evident in the data, AI's market investment gains won't be a straight line up and to the right. There will be fits and starts. There will be changing conditions for customers and suppliers. Investing in any company touching AI today is not a bet on the current fundamentals, but a bet on the direction of their business activities in 12 to 24 months. Owning the AI cloud hyperscalers used to be the easy investment. But rising semiconductor and other input prices combined with local datacenter construction opposition, have created a challenging 2026 for the stocks of the big builders. Last week's Micron earnings suggest that memory chip prices and margins might remain stable as the industry continues to face a shortage of manufacturing capacity. This could be the case, provided the competition elects not to accelerate its expansion plans.
We know that companies (and individuals) are finding AI benefits in saved time and money. Most companies are still in the early learning phase of implementing AI across their enterprise. Others are pushing ahead at full speed, spending thousands of dollars per employee to determine where the biggest benefits lie. Although AI is in its early stages, current token costs are being closely examined. Some companies are looking for cheaper solutions while also trying to increase computing power. Simultaneously, data centers and AI models are contending with rising costs for construction, power, permitting and technology hardware. While it may be easy to see the rising use of AI, it is difficult to know how the unit price of AI compute will change while the industry remains in a hyper growth stage. Bottom line, expect volatility to stick around for a while as the industry settles out.
Last week's AI news seemed like a series of falling dominoes. Micron crushed earnings and stated that it has locked in higher memory prices for the foreseeable future. Apple raises product prices by 15-20%. Amazon Web Services raised GPU prices for its cloud customers by 20%. Google is limiting Meta's use of Gemini due to a shortage of compute resources. The US government plays red light/green light with new AI model introductions. OpenAI leans toward delaying its IPO to 2027? SpaceX stock returns to the platform while its debt reverse thrusts many long bond portfolios. Bumps to digest as the AI train continues to accelerate away from the station.
We have reached the midpoint of 2026. Most investment asset classes are up, except for Gold and Bitcoin which are down 7% and 30% for the year to date. US Small/Mid-caps lead the equity pack with gains in the high teens to low twenties percent. The Nasdaq 100 is managing a mid-teens return even with the Magnificent Seven being flat. And International Equities, denominated in US$ terms continue to outperform the S&P 500. Even the fixed income asset classes managed small single digit positive returns. The S&P 500 has never peaked in June so history suggests higher prices are on the horizon. With the Mag-7 trading at their cheapest relative P/E in a decade, it wouldn't take much of a push for the S&P 500 to head toward 5,000. But stay tuned because as we have seen, the macro can turn this market on a dime, dubbeltje or tioöring. (US plays on Wednesday. Netherlands on Monday. Sweden on Tuesday.)
This is another short week because the market is closed on Friday for the observance of the 4th of July and the Argentina vs. Cape Verde match. The monthly jobs data will instead drop on Thursday, and several recent macro and micro signs point to a strong number. When we return from the holiday weekend, second quarter earnings reports will begin rolling out. The big financial companies kick off the week of July 13th and by the end of the month, two-thirds of the S&P 500 will have reported. With the Middle East conflict behind us, we should be able to focus more on the micro rather than the macro. The WRB will take next weekend off to watch soccer and the fireworks. Enjoy the holiday and good luck to your team during the elimination rounds.
Have to start out with the very impressive Micron numbers…
84.6% gross margins! Wow. The company shifted a significant portion of its future revenue to 3-5 year contractual arrangements with its top customers in an attempt to lock in higher prices (and margins) for longer. It sounds like a good strategy unless the competition decides to overbuild which is what typically trips up this most cyclical part of the semiconductor market. Micron trades for 7-8x forward earnings. Apple trades for 30x forward earnings. As you can see from the below chart, one has much gross margin stability and one does not.
@TheTranscript_
Global semiconductor memory stocks have already moved to reflect the very positive environment today. But what next?
Apple and Microsoft raised their consumer product prices on Thursday, citing memory and storage chip costs that have more than doubled since last fall and are expected to double again by late 2027. The driver is demand for DRAM and NAND from AI data centers. Memory chip stocks have gone parabolic, extending their rally after Micron’s blowout earnings report on Wednesday.
I see parabolic moves both in semiconductor price action and in hedge fund exposures…
And yes, there are also 2x and 3x levered ETFs to speculate in further upside in semi stocks. Luckily my Waymo driver cannot yet tell me about its 4x levered prediction market bet on DRAM prices.
When will DRAM prices settle? No idea which is why the stocks trade at single digit multiples…
Micron Technology Inc. Chief Executive Officer Sanjay Mehrotra said Wednesday that while chip availability may improve in 2028, there is “no line of sight” to when supply will catch up with demand.
That means chip prices will likely keep rising, forcing consumers to pay more for laptops, phones and other devices. Already, the price of a DDR5 chip typically used in personal computers has increased more than fourfold in the last year, according to data from inSpectrum Tech Inc.
“With tight supply and demand likely lingering into 2028 at this point, pricing is unlikely to decline through 2027,” said analyst Jake Silverman with Bloomberg Intelligence. “Consumer device prices may have to keep increasing, albeit at more moderate rates just to sustain healthy product margins.”
But until they do settle, the rest of us will be paying the price for memory shortages…
After Tim Cook warned us earlier in the month, Apple wasted no time in raising product prices mostly in the 15-20% range. This doesn't include iPhone's which will reprice with the new model rollouts. But you can guess that double digit price increases will occur when the new iPhones roll out in September.
J.P. Morgan
A little Star Wars/Memory price/AI Cloud buildout humor for you…
Speaking of AI, industry revenues are going parabolic…
More importantly, the average AI spend per corporate employee is Grogu sized. Worry more when it gets Chewbacca sized and doesn't prove its benefits.
For anyone looking for AI cost & time savings across large enterprises here are some examples…
Deutsche Bank — Using AI to speed up technology projects and work through internal backlogs. Key metric(s): projects that previously took two years are now being completed in three to six months; backlogs that once took months are now being cleared in weeks. Confirmed by company executive.
Reuters
Santander — The bank said AI generated €35 million in business value in Q1 2026 and is on track to exceed €200 million by year-end, as it expands AI access to all 185,000 employees. In Brazil, Santander also said AI cut card-fraud claims processing times by 95% and automated up to 90% of cases.
Santander
Lowe’s — Lowe’s said AI-powered 2D-to-3D model generation cut creation cost to less than $1 per model, while AI-assisted engineering supports 8,000+ code reviews per week across its digital workflows.
Nvidia
Salesforce — The company said AI has automated 96% of support cases internally and saved more than 50,000 hours of sales work. CNBC also reported that Salesforce’s Agentforce resolves 63% of customer support questions while maintaining customer satisfaction levels comparable to human agents.
CNBC
Amazon — Amazon said its internal use of Amazon Q to modernize Java applications saved more than 4,500 years of development work and delivered $260 million in annual cost savings. Separately, Amazon Q Business answered more than 1 million internal developer questions, reducing manual technical investigation time by more than 450,000 hours.
Amazon
AWS Official Blogs
Also speaking about of the importance of AI…
AI infrastructure stocks are expected to contribute nearly 60% of S&P 500 EPS growth this quarter. The top 10 contributing stocks are expected to account for nearly 75% of aggregate S&P 500 earnings growth in Q2, with Micron (MU) and NVIDIA (NVDA) together accounting for more than 40%.
Goldman Sachs
The importance of AI to the market has not helped the Mag-7 this year…
The MAGS ETF peaked at a record high on May 26 and fell 12.9% though Friday's close (chart). It is down 6.6% ytd, while the XMAGS ETF (a.k.a. the "Impressive 493") is up 13.7%. The Mag-7s have been the Lag-7s.
The Mag-7 P/E relative to the S&P 500 is now at its cheapest in 10 years…
J.P. Morgan
History suggests that the market is going higher…
"The S&P 500 has never peaked for the year in June"
@ryandetrick
The equal weighted S&P 500 just put up a big week as internal rotations continue to broaden the market…
The rotation in markets has been violent but encouraging for some equity investors. While traders sold tech stocks last week, they bought everything else, with the equal-weighted S&P outperforming the market-cap index by the most since 2020.
@lisaabramowicz1
Small Caps now beating the S&P 500 by 20% year over year…
@MikeZaccardi
And the Health Care ETF just put up its best week vs the S&P 500 in 26 years…
The Daily Shot
Health care stocks are waking up helped by newer drugs, M&A and low valuations…
Daily Chart
International equities are also getting attention as they look to outperform US stocks again…
On a semiannual basis, the MSCI ACWI Ex-US Index has been outpacing the S&P 500 for three consecutive periods, which has not happened since 2007-2008
@KevRGordon
Interesting survey of some of the largest pools of money in the world: more private, less public…
The world’s biggest public investors plan to shift more capital into private and less liquid assets amid rising risks to their traditional bond-and-stock portfolios, according to an industry survey.
Roughly a third of sovereign wealth funds polled by Invesco Ltd. plan to boost allocations to private credit, private equity and infrastructure assets over 2026, while nearly a fifth want to curb exposure to equities…
SWFs and central banks understand that “there’s a lot of dispersion and diversity” within private assets, Benjamin Jones, global head of research at Invesco, told Bloomberg News. “Investors generally are looking very carefully at the space and doing a lot more due diligence.”
Private assets are not immune to macro shocks, but their lower liquidity can suit investors with longer time horizons — such as SWFs and central banks that manage assets worth roughly $29 trillion. Unlike public assets, which are repriced daily, private assets are valued less frequently and easier to hold throughout economic cycles.
German investment banks busier than the air conditioner salespeople this summer…
Maybe the only thing hotter than the record temperatures in western Europe this week has been Germany’s M&A market…
Bloomberg-compiled data show that the value of transactions involving German countries has risen almost 70% this year to around $145 billion.
“There is a growing conviction that scale is an imperative and that belief is driving boards to act with decisiveness, despite the complex geopolitical backdrop,” said Christopher Droege, head of M&A in Germany and Austria at Goldman Sachs…
“Most of the headline transactions have been cooking for a long time and are the end of one story—unlocking value by releasing businesses that deserve to stand on their own under more focused ownership,” said Rick van Aerssen, partner at law firm Freshfields. “This will continue, but the next chapter is increasingly being written by AI, defense, and the green grid. And that’s a bigger story.”
US deal count is also eyeing new high levels…
Must have been two dozen $1b-$20b sized deals announced in the last two weeks by my count.
"U.S. M&A deal activity decreased in May, going down 17.6% with 1,041 announcements compared to 1,264 in April. However, aggregate M&A spending increased. In May, 15.4% more was spent on deals compared to April."
@FactSet
June IPOs with >$250m deal size have done well…
Now what IPOs will July bring?
That will make for a lot of tax loss selling come year end…
Lee Kuan Yew, the former Prime Minister of Singapore, would have some good advice for Europe as they think through their current heat management issues…
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The author has current equity ownership in: Apple Inc.
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