Micron's $100B Supply Deals, "Irrational Exuberance" & the Market's Next Move | Chris Versace

Hey everyone, it is Julie here with TipRanks. Once again, I have the pleasure of being joined by Chris Versace from The Street Pro and we are going to be diving in to the highly anticipated Micron earnings that came out last night plus some different economic data from this week as well. Chris, thank you for joining me today. >> Happy to do it, Julie. You know I always look forward to our conversations. >> I appreciate it. Now, of course, Micron just reported earnings last night. Stock jumped up, I think it was as much as 18% at one point. I think we're up about 10% right now. I mean, we saw revenue quadruple, earnings were up more than tenfold. What was your biggest takeaway from the report? >> I think the biggest takeaway and I don't want to steal any thunder is is the notion that supply of memory is not likely to catch up to demand anytime soon. So, you know, when we think about the pricing environment, the revenue outlook, the backlog environment, all very positive for Micron. I I also think and I wrote about this yesterday that this is going to set the table for a very receptive IPO in the coming weeks from another memory company, SK Hynix out of out of Asia. And, you know, putting it all together, Julie, it's just more confirmation of the ramping demand tied to AI and data center. It just just puts a nice bow on it. >> Yeah, I think they mentioned that the the supply versus demand is going to be tight until at least 2027 and would only start improving in 2028, right? >> That's that's second part, you know, that 2028 number or date I should say is really the important part because it it it tells us that you know, not only is demand strong, but there is going to be a ramping of capacity for memory. And and remember too that in the meantime, you know, Micron and others are shifting the capacity they do have to really serve AI and data center demand because it's so robust, which means that they're sacrificing shipments to other markets, PC, smartphones, and the like. And And you know, just to connect the dots as I like to do, this morning we saw Apple come out and say that they are raising prices on Macs and iPads because of, you know, component shortages flagging memory. So, this really tells us it's very real and we're likely to see other companies do the same. >> I know another number that stood out to you was 16 and that was in reference to their 16 long-term supply deals locking in, I think it was about a hundred billion dollars in revenue. So, how significant are those deals? Especially for investors that have been worried about like the sustainability of margins. >> Well, look, there's a lot of questions. Are Are Are we in a bubble? How sustainable is this? And I I think that goes a long way to addressing them. But, you know, kind of kind of at the same time, Julie, you know, if we think about the multi-year buildout that we're going to see for AI data center and and and AI moving into other devices over time, something that Micron really flagged in their prepared comments last night, you know, this really does make, you know, I hate to say it, a lot of sense and and the silver lining behind the need to add additional capacity, you look at like in a pro portfolio, we own Applied Materials, you know, they are a, you know, key supplier to Micron for equipment, Micron is increasing their capital spending. It It's It's nice to see a you know, the data points lining up and kind of following through. >> You led me right to my next question there cuz I did want to touch on their CapEx forecast of 27 billion dollars. How do we think about that? >> I, you know, look, not surprising. Ahead of Micron's earnings last night, we were saying that the odds that they would have to step up their capital spending level was extremely high just given all the commentary we've seen about the memory shortage and and the persistence of it that we're likely to see. You know, it it And just just for folks who aren't as familiar with it, you know, earlier this year Micron said their capital spending in 2026, not 2027, not 2028, just 2026, would be more than 25 billion. So, we've got a nice, you know, up, you know, spending increase to, you know, more than 27 billion. I wouldn't be surprised, Julie, if it goes even higher. >> Now, I want to touch on the analysts that are weighing in on the stock. First thing this morning, I think I saw at least 13 analysts that had already increased their price targets. I'm sure more have weighed in since we started talking here. We have a new street high price target of $2200. That's another 75% from where the stock is sitting now. What do you think of these price targets? >> You know, I I have to be careful here because on the one hand, I'm really happy to see them because through the EPS All Stars strategy that we have in the pro portfolio, we have exposure to Micron shares. So, go for it, guys. Lift those price targets. Make me happy. But, at the same time, I also think that, you know, we we we have to be careful because there can be a lot of, you know, excitement or dare I use some words from the past from a former Fed chairman, irrational exuberance, um where price targets can get ahead of themselves. So, I I I would be, you know, cautiously optimistic, but you know, I I'm also mindful that there are those Wall Street analysts who like to make a splash, like to get attention, and, you know, sky-high price targets, that's that's one way to do it. We'll we'll sit back, continue to follow the data, and reevaluate price targets over time. >> Absolutely. Now, just this morning we had May PCE data come in. Headline was at 4.1% year-over-year, uh matched expectations, and then the core came in at 3.4% which was just a tick hotter than the forecast. What does this all mean for you? >> Um candidly, not much. And I I say that because we've seen really since this data was collected the continued fall in oil prices. Uh we're seeing gas prices fall as well. And I I think it kind of signals um that the peak inflation data has likely arrived in the month of May. Kind of helping me puzzle through that was the flash PMI report from S&P last week that kind of showed uh input prices falling or starting to fall, I should say. Uh and output price increases slowing as well. So I I I do think that we're, you know, probably the worst of the hump. Now, that doesn't mean we're going to see a, you know, significant ramp down in inflation data. I think it will continue to improve over time, but the price increases that companies put into place in response to those high oil prices, diesel prices, you know, and gas prices, they they have to flow through the system, so to speak. But, my suspicion as well is that those in the market that are calling for three rate hikes this year are going to be disappointed. Um candidly, I think as we get the inflation data for June, July, August, I wouldn't be surprised if the uh market forecast for two rate hikes by the first quarter of 2027 is rethought. >> Valid. And I know that the market was pricing in possibly a September hike, uh but like you said, they trimmed the odds slightly on this. So, and you said that that view feels at least somewhat aggressive. So, how how do we weigh in on that? >> Well, I think, you know, look, there's no no question that the data so far has really moved, you know, in the opposite direction of the Fed's 2% mandate. Um you know, new Fed chair Kevin Warsh was adamant that the Fed will get uh inflation back down to 2%. So, for me, um we're going to again wait and see what is the June, July, August data have to say. We'll have all of that before the Fed's September meeting. And and if we see, you know, possibly a ramp down in the inflation data like we're seeing in oil prices, that could give uh folks another reason to rethink that expectation for a September rate cut. But it it's going to depend on the data, Julie. >> Another thing I want to touch on is the banks' annual stress test results. Uh so, the Fed released those saying that the large banks absorbed over 700 billion in hypothetical loan losses and still stayed above the capital requirements. Were you surprised by how well they held up? >> Uh you know, I have to say no. Um you know, this has kind of become like an annual um event, you know, where we eventually see uh big banks roll out, you know, dividend increases and in some cases uh upsize their share repurchase programs. Um you know, I I think the language that we've heard, you know, over the last several months about some softening in the level of uh difficulty kind of you know, paved for that expectation that the vast majority, if not all I believe, uh successfully cleared. >> Now, as you mentioned there, we've already seen some dividend increases uh coming through companies with Goldman, JP Morgan, Bank of New York. Morgan Stanley announced a 15% hike plus a 20 billion dollar buyback. So, how are you thinking about Morgan Stanley, Bank of America positions right now? >> Well, so you're right. We we do own Morgan Stanley and Bank of America. And I I just want to clarify that while Morgan Stanley did announce those things that you mentioned, Bank of America kind of came out and said, you know, we have a board meeting in July. We'll announce something on the dividend later. So, not that they haven't announced the dividend increase, it's forthcoming. But but conceptually, you know, dividends are great. You know, uh I I kind of view them as gravy, if you want to think of it that way, in the sense that they help, you know, um give shareholders like us in the pro portfolio a total return to look at when examining a position. But, we have to always focus on the business uh because that is the driver of, you know, not only profits and earnings, but cash flow. Cash flow helps drive dividends. So, for us, when we take a look at what's happened in the, you know, the current quarter, not only from M&A and IPO activity, but trading volume-wise, given the volatility, we do see some favorable year-over-year prospects uh for both companies when they report, and the continued strength in investment banking in the back half of the year keeps us bullish on both. >> All right, I like it. Well, as always, Chris, I greatly appreciate your insights in what has been another exciting week in the stock market, and I'll see you back here in a couple more weeks. >> You got it.