High bandwidth memory chips will be in short supply into the next decade. Micron continues to look great.
Markets and Stocks
The economy is on firm ground. The Atlanta Fed projects Q2 GDP growth at 3%. Because of the sharp decline in gasoline prices, inflation risk is receding. The new Fed Chair Kevin Warsh is an inflation hawk. Under his stewardship of monetary policy, inflation expectations will be well anchored. Low contained inflation maximizes long term economic growth.
Gasoline prices are expected to decline by another 50 cents a gallon over the next few weeks. This translates into about $200 million in household savings on a daily basis.
Earnings growth for the companies that make up the S&P 500 should be strong say around 15-20% on an annual basis as long as the AI investment boom continues. Because the hyper scalers and Elon Musk’s SpaceX want to be number one with regard to AI models, capital spending should remain elevated for the next five years and probably longer.
I expect S&P 500 earnings to double by 2030. Equities should perform well under this scenario.
Week Ahead
Micron reports earnings Wednesday after the close. Numbers should be fantastic, something around $21 a share for the quarter. Guidance should be strong.
https://www.barrons.com/articles/micron-stock-price-earnings-4393444f
On Thursday, we will get data on the Fed’s preferred inflation metric, core personal consumption expenditure inflation for May. It will probably be a hot number but this report should reflect peak inflation.
ASML
The stock is a must own name. Its $350 million EUV machines are absolutely necessary for fabricating the most advanced semiconductors. Companies around the world are investing aggressively in chip manufacturing facilities. The five year outlook for ASML is bright. On ASML ignore the noise about China possessing a top of the line ASML machine. That accusation is BS. ASML continually monitors its equipment.
Analog Devices and Texas Instruments
Shortages are emerging in the analog chip supply chain. ADI, MTSI and TXN look great.
MACOM , MTSI
As AI clusters become larger, more data must move between GPUs and servers. MACOM supplies many of the optical components that enable 800G, 1.6T, and future ultra-high-speed data center links. The company has reported particularly strong growth in its data center segment because of demand for AI-related optical connectivity products.
Data Centers
New research says that data centers overall actually lower electricity bills because fixed costs of electricity generation are spread across a larger base.
The U.S. Dollar
The often maligned dollar is trading at a 52 week high. A strong dollar weighs on inflation.
Gold and Silver
I continue to believe that gold and silver will rally strongly into year end. I focus on CDE and NEM.
Politics
The never ending war in the Middle East continues between Iran with its radical adherents against the pro Western nations of the region. Iran’s Revolutionary Guards have set up terror cells inside Iraq to attack the pro Western states of the Gulf Region.
The deal with Iran is a national humiliation for the United States.