Despite a nearly 4% jump in crude prices yesterday, global yields eased and equities rallied to fresh ATHs. Go figure. The S&P 500 was certainly powered by tech stocks, particularly chipmakers.

Endless Chipmania?

Micron, for example, jumped 20% yesterday — yes, 20% in a single session — and more than 1’200% since April 2025, after analysts at UBS more than tripled their price target on Micron from $535 to $1’625, arguing that AI has structurally changed the memory-chip business and that Micron is no longer just a cyclical DRAM company.

UBS said AI-driven demand for HBM memory, long-term supply agreements and expected memory shortages could keep pricing and margins elevated for years. And it probably will. But the memory-chip sector usually swings between boom and bust cycles: periods of supply shortages push prices higher, encouraging chipmakers to aggressively expand capacity. Supply eventually catches up, leading to a bust cycle where excess capacity weighs on chip prices and profits.

Right now, we are in the middle of a boom cycle. And there is little doubt that exploding AI demand will extend the boom phase of the cycle — and maybe smooth out the cycles in the future — but it won’t make them disappear completely. Micron’s own CEO said that the shortage could last until 2026–2027. What happens after?

Many things could happen. Among them, AI demand growth could slow, supply-chain disruptions could limit production and/or, more reasonably, new technologies could reduce demand for today’s memory chips:

• The chips themselves will probably evolve: new chip architectures, optical computing, better compression techniques, more efficient inference models or entirely different memory technologies could reduce dependence on today’s HBM-heavy setups.
• The AI models will certainly evolve, too: smaller and more efficient AI models could require far less memory per computation unit than today’s giant models. That could weaken the extraordinary pricing power memory makers enjoy now.

This doesn’t mean that memory chipmakers won’t enjoy an extended period of extraordinary profits, but the latter has already been widely priced in, while valuing these companies as if today’s shortages and margins will last forever carries obvious risks.

Take a breadth

The Korean Kospi index is up another 3.70% this morning, to a fresh ATH — of course driven higher by Samsung and SK Hynix — while the Kospi equal-weighted index is down 2% today. highlighting an extraordinary divergence and alarmingly narrowing market breadth.

How long can technology ignore the ugly geopolitical backdrop, rising borrowing costs and a weakening economic outlook? We will see. There is a chance that good news from the Middle East helps lift lagging sectors and encourages inflows into the rest of the market, balancing out the rally and making it look a bit healthier — and more sustainable.

In the meantime, we continue to watch the economic data to assess the extent of the impact on activity and prices. Last week, PMI numbers hinted at notably slowing activity across major economies combined with rising price pressures. This morning, Australian inflation figures suggested that price pressures slowed more than expected compared with April — despite the initial jump in energy prices due to the Iran war. But the trimmed mean CPI rose 3.4% y-o-y, however, to the highest level since September 2024.

Around the corner, the Reserve Bank of New Zealand (RBNZ) kept its policy rate unchanged for the third meeting but warned that the OCR is likely to rise sooner and by more than previously expected in the February meeting, with the speed of future hikes dependent on the balance between persistent price pressures and weaker economic activity. The Kiwi dollar bounced off its 200-DMA on the hawkish statement. Elsewhere, the US dollar index remained little changed near the 50-DMA. Futures are flat this morning.

Earnings & risks

The US earnings season is gently coming toward an end, with a spectacular 28.4% earnings growth rate printed for the quarter — the highest since Q4 2021 (circa 32%). But if you strip out Big Tech, earnings growth still looks solid — just far less impressive.

The Magnificent 7 delivered roughly 60%+ earnings growth, while the remaining 493 companies delivered around 17–18% earnings growth. The broader market still grew at a healthy pace despite an unideal geopolitical backdrop and already rising energy prices by the end of the reporting period, suggesting that one month of disruption was manageable for many companies. But a prolonged energy shock or sustained geopolitical instability could prove much harder to absorb — especially with valuations already stretched.

Tech stocks amassed the ‘haven flows’ as the war encouraged investors to pull their money away from sectors that would be more directly hit by rising energy costs, supply disruptions and geopolitical uncertainty. But even the technology sector is not entirely shielded from the consequences of a prolonged conflict.

In short, it would still be better — even for tech stocks — if the war in the Middle East ended.