Good morning investors,
Micron took the microphone last night and delivered one of the most emphatic earnings reports I have seen in years. After two brutal sessions where the bears had the floor and the AI bubble chorus grew loud, the picks and shovels supplier at the center of the memory trade put the demand concerns to rest in resounding fashion. This was the report investors needed, and it arrived exactly when the trade needed it most.
Micron reported $41.46 billion in fiscal third quarter revenue, blowing past both the $35.8 billion analysts expected and the $33.5 billion it had guided just three months ago. Revenue more than quadrupled from $9.3 billion a year ago, meaning the company is now four and a half times larger than it was last year. Gross margin hit 84%, up from 37.7%, a figure that more than doubled year over year and came in well above the Street's expectations. Operating cash flow reached $25.4 billion in a single quarter. The stock surged 16% in the premarket, pushing its market cap to $1.2 trillion after a 723% climb over the past year.
The single most important line in the entire release was the guidance. Micron's management expects roughly $50 billion in revenue next quarter, against a Street estimate near $43.6 billion and up from $11.3 billion in the year ago period. That is the number that matters because it tells you the internal belief is that the AI demand curve is still steepening, not flattening.
Futures are responding accordingly, with Nasdaq futures up 2.2%, S&P futures up 0.8%, and the chip complex roaring back. Qualcomm is up nearly 12%, Intel up 6%, with SanDisk, Western Digital, Lam Research, and Applied Materials all rising in sympathy. The selloff that gripped global markets earlier this week has reversed hard.
The Bar Was the Enemy, and Micron Cleared It Anyway
I wrote yesterday morning that the bar was the enemy. After a stock that had risen more than 700% over the past year, another merely strong quarter would not necessarily have been enough. We saw that exact movie this week with FedEx, which beat on both the top and bottom lines and still fell 7% because expectations had simply become too high. That was the genuine risk into this print, and it is why I cautioned that even a good report could draw a volatile or negative reaction.
That is not what happened here. Micron did not just beat estimates, it materially exceeded them and raised guidance by enough to force investors to rethink where the company's earnings power may ultimately settle. DRAM revenue significantly exceeded expectations, NAND came in well ahead of consensus, and the feared post-earnings disappointment simply never materialized. The company also revealed it has signed 16 long-term agreements with customers ranging from data centers to automakers, locking in sales over three to five years and representing roughly $22 billion in financial commitments. RBC estimates about 40% of Micron's revenue will now come from long term contracts with minimum prices built in, which meaningfully limits margin risk even if demand softens during the contract term. That is the kind of structural visibility memory investors have never historically had.
The Detail That Matters Most to Me
Micron's CFO said the company expects to be supply constrained all the way into fiscal 2028, and crucially, that he has no line of sight to when supply and demand will reach equilibrium. Sit with that for a moment. The chief financial officer of the company at the absolute center of the memory bottleneck is telling you that demand could outstrip supply out to 2028 and potentially 2029, and that he cannot yet see the point where it balances.
I read that as decidedly positive for the entire AI trade. The bear case all week, echoed by serious voices, was that AI infrastructure spending was beginning to normalize, that pricing wars were emerging, that GPU rental prices were softening, and that memory was just another cyclical trade nearing its peak. Last night's results, and that guidance, push back firmly against every piece of that narrative. This is exactly the question I have framed for weeks: are these earnings cyclical or structural? Micron just gave us the strongest evidence yet that this is a structural AI cycle rather than a traditional memory cycle. A company guiding to $50 billion next quarter with no visible end to the supply shortage is not a company at a cyclical peak. It is a company still climbing one.
I want to keep my intellectual honesty here, because I have insisted on holding this view with humility. None of this means high-bandwidth memory has stopped being a cyclical business in the long run. Micron and its peers have sold off as fast as they have run up before, and they will see periods of real volatility again, especially after a run like this. The dot-com value trap parallel I worried about, where a low multiple masked an earnings peak, looks far less applicable today. Back in 2000, the cheap multiple was the market correctly sensing that earnings were about to evaporate. Here, the earnings are not evaporating, they are accelerating, with management telling you the constraint is supply rather than demand. According to its latest balance sheet, there is no bubble in sight. That is the difference between a value trap and a genuine bargain, and last night tilted me further toward the latter.
Why This Matters Far Beyond One Stock
The significance extends well past Micron. The S&P is up about 7% this year, and a handful of semiconductor and AI names, Micron prominently among them, have done most of the heavy lifting. That concentration is precisely what made cautious investors wary of a top heavy bubble, and it is what got kicked out from under the market on Tuesday when the memory leg buckled. As investors digest these results today, they are effectively deciding whether that leg has been put back under the stool. The early read from the futures says yes.
Here is the framework I keep returning to. Asset prices only constitute a bubble when a rally outruns its fundamentals. In Micron's case, that simply has not happened. The fundamentals are running right alongside, or ahead of, the price. If the nervous breath holding into this report felt familiar, it is because we have watched the identical sentiment play out for a dozen straight quarters with Nvidia. As loudly as the bears have shouted before each Nvidia release, the company has reported record breaking numbers and effectively rescued the market each time. Micron just did the same. The lesson is not that warnings are always noise, but that you do not bet against accelerating earnings backed by real, contracted demand.
The Rotation Was Healthy All Along
I want to revisit something I said yesterday, because this week validated it. Tuesday's rout was not capital fleeing the market, it was capital rotating within it. While the AI names bled, the boring blue chips like Walmart, Johnson & Johnson, and Procter & Gamble turned green. That rotation is the signature of a healthy bull market, not a dying one, and the breadth data underneath confirms it.
This is the part the headline indexes obscured. Even on down days this week, the number of stocks trading above their 20-, 50-, and 200-day moving averages kept rising. Roughly 64% of the S&P now sits above its 200-day average, on the verge of breaking out to multi-month highs. The NYSE advance-decline line pushed higher again and is near new all-time highs. Breadth leads price, and this is a genuinely bullish development that ran directly counter to the scary headlines. The rotation happening under the surface, from the crowded momentum leaders into the neglected average stock, is exactly the broadening I have been calling for as the next healthy phase of this bull market. It was happening even as the tape looked ugly.
And notably, despite the S&P sitting just 3.5% from its record high, the Fear and Greed Index has fallen almost to Extreme Fear. That kind of disconnect, real fear with prices barely off the highs, is often the hallmark of a sentiment driven wobble rather than a fundamental breakdown. Some of this week genuinely felt like a vibes based correction to a vibes based boom. The boom underneath, though, is real. As DataTrek put it, corporate earnings have been the true star of the past twelve months, with analysts raising 2026 and 2027 estimates by a remarkable 13% and 16%.
Today's Test: PCE
Before we celebrate too hard, today brings the Fed's preferred inflation gauge, and it is not going to be pretty. May PCE is expected to show a 0.4% monthly jump, lifting the YoY figure to 4.1% from 3.8%. Core PCE is seen at 3.4% annually. Those are hot numbers, and they validate the hawkish turn from Warsh and the committee. A print in line or above could revive the rate hike anxiety that has hung over the market all month, with the bond market already pricing an October hike as essentially certain.
Micron just told us the AI earnings engine is roaring, but PCE may remind us that the inflation backdrop keeps Warsh leaning hawkish and the bond market on edge. My framework holds both ideas at once. The equity earnings story is powerful and structural, while my real worry remains the bond market given the fiscal deficit and a Fed chair determined to establish his price stability credentials. The 10-year sits at 4.41% this morning, still well below the 4.75% level that would change my mind on equities, but I am watching the reaction to PCE closely. And worth noting, the Fed's balance sheet actually rose again to its highest since March 2025, driven by Treasury holdings, which complicates the tidy hawkish narrative and is the kind of detail I keep flagging.
Oil Erases the Entire War
Brent crude has now officially erased all of its gains since the Iran war began on February 28, falling to around $75 this morning, with WTI near $72. The risk premium that built up over four months of conflict has completely evaporated. President Trump took to social media yesterday to blast oil companies for not passing the savings to consumers fast enough, accusing them of gouging and directing the DOJ to investigate.
Whatever the politics, the underlying reality is unambiguously good. Energy back at prewar levels is the quiet tailwind cushioning the consumer and the inflation picture, even as today's PCE captures the lagged effects of the war's earlier oil spike. This is the support I have pointed to repeatedly. Falling crude helps both the bond market and the consumer at exactly the moment the Fed is leaning hawkish, and it is a meaningful offset to the inflation worry.
Google Joins the Dow, and a Thought on Owning Assets
Alphabet officially replaces Verizon in the Dow effective Monday, and I will not belabor the point I made yesterday beyond reaffirming it. I believe Google is the leader in AI and the market has been mispricing it relative to peers like Apple. The blue-chip label is a nice trophy the company hardly needs, but the inclusion reflects the reality that AI, cloud, and advertising now define the economy's center of gravity. The observation that the Dow increasingly just looks like the Nasdaq is fair, and it raises real questions about that price-weighted index's role, but it underscores where the durable growth lives.
The data on the US wealth divide is stark. The top 20% of earners now account for roughly 58% of all personal spending, the highest on record, up from a roughly even split with the bottom 80% back in the 1990s. Foreign holdings of US equities just hit a record $23.2 trillion. The uncomfortable but undeniable lesson embedded in these figures is that you increasingly have to own assets to win in this economy. This is not a political statement, it is an observation about how wealth is actually compounding, and it is precisely why I am so passionate about helping people build a real, disciplined plan to participate. Sitting entirely on the sidelines in cash, while understandable in a scary week, carries its own profound long term cost when assets are doing this much of the work.
A Note on Crypto
Since the asset ownership theme invites the question, a quick word on crypto, which has had a brutal run, erasing more than half its value in eight months from a $4.3 trillion peak last October to about $2 trillion today. My view is measured. I do believe there is a place for crypto in a portfolio, but it should be a smaller allocation precisely because of this kind of volatility.
Crypto ownership is fundamentally a question of relative weight, of position sizing, not a binary in or out decision. I think Bitcoin bounces eventually, but the immediate momentum and the betting seem skewed toward 50k in the near term. However, the crypto space does present such negative sentiment that a bounce could come at any minute. As with everything this week, the right answer is not conviction in a single direction. It is owning the asset at a size your plan can tolerate through exactly this kind of drawdown.
Where I Net Out
The most crowded, most leveraged trade on earth reset hard, the froth in leveraged ETFs and momentum got punished, and then the fundamentals reasserted themselves with one of the most emphatic earnings reports in memory. This is how healthy bull markets behave. They scare you, clear the excess, and then the earnings show up.
My long-term view is unchanged and, if anything, strengthened. This is a structural AI cycle, not a traditional memory cycle, and Micron's guidance to $50 billion next quarter with no visible end to the supply shortage is the strongest evidence yet. Earnings are growing over 25% this year, breadth is broadening beneath the surface, oil has erased the entire war premium, and the AI demand curve is still steepening. JPMorgan just raised its year end S&P target to 7,800 on the Iran progress, even while warning about froth in secondary AI names, and I remain constructive to the upside as participation broadens.
The honest cross current is today's PCE and the hawkish Fed, and the bond market remains my chief worry rather than the stock market, but that is a manageable risk within a fundamentally intact bull. Micron cleared the bar when the bar was the enemy. The earnings story holds. Stay invested, stay disciplined, and remember that the investors who came through this week best were not the ones who guessed right on each swing, but the ones who owned AI at a size set by an actual plan and could sit through the scare. If this week made you question whether your portfolio is built for your goals rather than the headlines, that is exactly the conversation I would welcome.
Best regards,
Dan Sheehan [email protected]
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Market Pulse with Dan Sheehan is a personal market commentary newsletter and is independent from my employer. The content is provided for informational and educational purposes only and reflects my views as of the publication date, which may change without notice. Nothing contained herein should be construed as personalized investment, legal, tax, or financial advice, or as a recommendation to buy or sell any security. Any positions discussed represent my own views and may not be suitable for every reader's objectives, financial situation, or risk tolerance. Information is derived from publicly available sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Readers should conduct their own research and consult their own professional advisers before making financial decisions.