Micron's Strong Earnings Amidst Rising Interest Rate Pressure

Micron recorded sales of 54 billion dollars, exceeding market expectations of 51 billion dollars by more than 3 billion dollars, and showed a high year-over-year increase of 379%.

Earnings per share (EPS) also surpassed the forecast of 31.61 dollars, reaching 33.4 dollars, and operating cash flow also exceeded expectations, recording 4.397 billion dollars.

Furthermore, in its Q1 guidance, Micron presented a positive outlook, exceeding all market expectations with sales of 6.15 billion dollars and EPS of 35.4 dollars.

Rising energy prices and interest rate burdens led to declines in sectors excluding tech stocks, with the possibility of reaching 6% being raised. The 30-year bond yield is even discussed to reach 6%.

This continues to be a major factor driving interest rate increases as market distrust of inflation figures persists.

The rise in energy prices and interest rate burdens are putting downward pressure on sectors across the board, beyond just tech stocks.

Even with soaring interest rates, large tech stocks like NVIDIA, Apple, and Google, as well as semiconductor stocks, maintained an upward trend, overcoming the impact of interest rates.

In contrast, interest-sensitive stocks such as financials and healthcare showed sluggish performance, with tech stocks being the only sector to show an increase among the 11 sectors.

The S&P500 index is also showing a downward trend, facing resistance at its peak, suggesting that it will be difficult for the stock index to break through its upper bound without a drop in interest rates.

A majority of stocks are below their 200-day moving average, indicating a lack of market breadth, with interest rates cited as the biggest reason.

Recently released economic indicators were generally better than market expectations. Personal Consumption Expenditures (PCE) recorded 0.2%, lower than the forecast of 0.3%.

Gross Domestic Product (GDP) recorded 2.2%, significantly exceeding the forecast of 1.5%, and personal spending also showed 0.9%, higher than the forecast of 0.8%.

Overall, inflation indicators were lower than market expectations, showing a stable trend.

Ambiguity is being raised between the actual easing of inflationary pressure and the possibility of changes in inflation measurement methods.

The phenomenon where prices do not easily fall even under the current high interest rates is interpreted by some as a possibility of 'manipulation'.

Meanwhile, due to the surge in the 30-year Treasury yield, mortgage rates recorded 7.3%, and the number of mortgage applications decreased by more than 10% due to the impact of high interest rates.

Real estate and rentals, along with the software and financial sectors, continue to show robust performance.

The transportation and aviation sectors showed negative performance due to increased transportation costs resulting from rising fuel prices, which in turn lowered overall real purchasing power and led to a contraction in retail sales.

The S&P500 index has traded sideways for 5 weeks, falling 4.5% based on the median value, but there is a bullish argument that a significant decline is unlikely due to strong earnings.

Conversely, bearish arguments, based on narrowing market breadth, rising bond yields, and widening credit spreads, anticipate a decline.

In the current situation of rapidly rising interest rates, it is more likely that a limited range-bound market will continue rather than a trend-driven ascent.

Bank of America (BofA) predicts that the direction of the stock bull market will be determined more by an 'artificial intelligence put' (AI put) than by interest rate trends.

This means that investors' fear of missing out on AI investment opportunities is protecting the stock market from bond market volatility.

This phenomenon operates similarly to past Fed market bailouts, the 'Fed put,' but there is a significant discrepancy between optimistic cash flow forecasts and conservative macroeconomic outlooks.

The 'AI put' refers to a phenomenon where stock prices do not fall due to investors' strong confidence in AI and continuous buying, rather than Fed policy.

However, if expectations for AI collapse, the stock market risks a significant decline, and market participants still question when AI investments will generate actual profits.

This differs from the past Fed put options, which depended on the policy decisions of powerful monetary institutions, whereas the AI put option relies on the uncertain confidence of millions of investors.

Goldman Sachs estimates that over $1 trillion was spent on data center construction by the end of 2022. The explosive growth in demand for AI and tech services supports this scale of investment.

Conversely, analysts covering sectors that must pay for these AI services maintain a much more pessimistic outlook than those in the tech industry.

It is emphasized that current stock prices can only be sustained if AI investments lead to actual profits and generate cash flow.

Ongoing geopolitical tensions, such as the Strait of Hormuz blockade, the invasion of Ukraine, and the Red Sea crisis, are reducing the efficiency of the entire supply chain.

Shipping disruptions and risk premiums have led to rising insurance costs, with shipowners demanding higher freight rates for operating in dangerous areas.

Many tanker companies have improved their financial health by repaying debt, with reduced interest expenses and increased revenue from rising insurance premiums driving profit margins.

The performance of tanker-related ETFs has been in the range of 120-140%, and some shipping companies are returning as much as 85% of their net profits to shareholders through aggressive shareholder return policies.

HSBC raised its rating on Target to 'Buy' with a price target of $190, citing positive upside potential.

Target reported a 3.8% increase in comparable store sales and a 2.7% increase in owned-brand sales in Q2, and benefited from approximately $994 million due to tariff refunds.

Applied Materials recorded Q3 revenue of $9.12 billion, a 25% year-over-year growth, achieving its highest-ever performance.

Despite higher growth and net profit margins compared to the industry average, the stock showed volatility, dropping 6% after the Anthropic CEO's remarks on moderating AI development speed.

This is analyzed as an adjustment due to changes in AI investment sentiment, rather than fundamental company issues.

Aurora Innovation, which plans to transition to an autonomous driving technology-as-a-service business model starting in 2027, aims to operate 30,000 driverless trucks and achieve $5 billion in revenue by 2030. Morgan Stanley set a price target of $18 for Aurora Innovation, highlighting its long-term growth potential.

The company plans to transition to an autonomous driving technology-as-a-service business model starting in 2027, aiming to operate 30,000 driverless trucks and achieve $5 billion in revenue by 2030.

Morgan Stanley set a price target of $18 for Aurora Innovation, estimating a potential long-term increase of 300-400%.

The rate of cash burn, contrasting with growth potential, is an asymmetric risk investors must watch. With quarterly expenditures of approximately $250 million, further capital raising becomes inevitable, posing risks of dilution for existing shareholders and a potential stock price decline of around 40%.

Due to this risk, which could lead to a 40% drop in stock price, investors are advised to use stop-loss orders and employ a strategy of small, staggered purchases to manage risk.