Rising Oil Prices and Interest Rates Drag US Stocks, Tech Seeks Rebound with Improved Earnings

The US stock market index declined today due to falling oil prices. Investors sold off holdings in disappointment after expected negotiation results failed to materialize, and oil prices continued to rise, impacting stock prices. A general sense of disappointment dominated the market.

Major technology companies engaged in cloud businesses showed a rebound in stock prices. Companies like Google, Amazon, and Microsoft saw their stock prices gradually increase, maintaining a favorable trend. This is analyzed as reflecting continuous demand and growth potential for cloud services.

International oil prices remain around $82 per barrel, but there is a high possibility of breaking through $90. If oil prices surpass the $90 mark, concerns are growing that the stock market's upward momentum will weaken. High oil prices can increase production costs and inflationary pressure, strengthening central banks' stance on interest rate hikes.

As market instability increases, a preference for safe-haven assets is becoming prominent. Gold prices rose by over 1%, showing strength, and the dollar also strengthened. The dollar's strength was particularly highlighted by the deepening depreciation of the Japanese Yen. This phenomenon reflects investors' tendency to seek safe-haven assets rather than risk assets amid uncertain economic conditions.

The S&P 500 index focused on the possibility of an agreement on the Hormuz maritime bill but showed rigidity against downward movement with no significant fluctuations. Iran's foreign minister made hawkish remarks, pointing to violations of the June memorandum and lack of compensation, stating there was no possibility of resuming negotiations. This increased doubts about resolving the dispute between the US and Iran, and oil prices are bound to continue rising. Intel's stock price fell 4% after announcing a $15 billion common stock issuance.

He added that Iran is demanding compensation for damages incurred during military conflicts over the past five months, a demand never mentioned in any previous negotiations or talks.

Of the S&P 500 companies that have reported earnings so far, 87% have exceeded analysts' expectations. This represents a 31% rate of companies beating estimates, much higher than the average beat rate of 9% in the previous quarter. Even excluding one-time factors, the average quarterly earnings surprise for S&P companies remains 11% higher, leading to the conclusion that corporate earnings are supporting the market.

This is aimed at securing future growth momentum and raising capital for expenditures, and will be carried out through a public offering of common stock. With this large-scale fundraising, Intel appears to be aiming to secure investment capacity for future growth.

Intel reported its strongest revenue growth in 15 years in its earnings report late last month, driven by surging demand for data center central processing units (CPUs). As CPUs became central to the artificial intelligence (AI) competition, demand for these chips exceeded supply, allowing Intel to also raise prices. This demonstrates that Intel's CPU technology plays a crucial role even in the AI era.

Micron Technology also shows excellent margins with a GP margin of 84% and an OP margin of 86%, but its price-to-earnings ratio is undervalued at 5.9x. It is noteworthy that companies with such high margins are undervalued.

Nevertheless, their operating profit (OP) margins and gross profit (GP) margins remain high. This suggests that their stock prices are low compared to the companies' intrinsic value.

The fact that both companies' margins were much lower a year ago exacerbates these concerns. Therefore, it appears that investors are not assigning high P/E multiples despite the currently high margins, due to uncertainty about future economic fluctuations. This is because the semiconductor industry tends to experience repeated booms and busts.

News of this large-scale fundraising impacted the stock price, and analysts suggest that investors' profit-taking further fueled the decline.

The average selling price of high-bandwidth memory (HBM) increased by 79% year-over-year, and HBM4 is expected to exceed $30 per gigabyte. DRAM contract prices are projected to rise by approximately 20% quarter-over-quarter, with Micron Technology anticipating increases of 20% in Q3 and 11% in Q4 quarter-over-quarter. For NAND flash, Q3 contract prices rose by 20% quarter-over-quarter, with enterprise NAND specifically forecast to increase by 23%, indicating an overall rise in contract prices.

This offsets weakness in the personal computer (PC) and smartphone markets, driving overall market growth. Particularly, as data center construction and expansion become more active, demand for NAND and SSDs is strengthening further.

A key reason memory companies can sustain growth is the steady increase in capital expenditures (CAPEX) for data centers. The total CAPEX of major big tech companies like Amazon, Microsoft, Alphabet, Meta, and SpaceX increased from $115.2 billion in 2017 and is expected to continue rising in 2027. SpaceX also saw its CAPEX increase from $83.1 billion in 2010 to $99.4 billion, and these large-scale investments are expected to drive continuous growth for memory companies.

Cyxtera is analyzed as offering an overlooked investment opportunity in the rapidly growing data center market, potentially yielding significant returns. Cyxtera sold 50 million shares at $21 per share.

First, it has the capacity to address the current situation where data center supply cannot keep pace with demand. Second, it can help resolve bottlenecks in artificial intelligence (AI) and enterprise data centers by reducing time to market and development costs. Third, as this growth accelerates, Cyxtera's stock multiple is likely to increase further, making it an attractive investment.

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