What a week!
Our hero SanDisk (SNDK) delighted investors with its Investor Day, earnings season kept on cruising along, and the CPI/PPI reports helped quell fears over inflation.
So let's dig into the 5 things you need to know about markets right now. Use the table of contents to skip ahead:
It Was a BAD Week for Michael Burry and AI Shorts
Michael Burry of "The Big Short" fame made headlines this week.
Among other moves, he increased his Micron (MU) short and put on a big QQQ put options position.
The problem is that AI shorts are getting crushed.
First, SanDisk's (SNDK) Investor Day was very well-received, pushing up other AI stocks like Micron in sympathy.
Second, did you see the monster post-earnings moves in Nebius (NBIS), CoreWeave (CRWV), and Lumentum Holdings (LITE) this week?
They are the three most heavily shorted stocks in the Nasdaq 100.
And they are among the top-10 performers in the index this month.
Plus the QQQs have been grinding up, which eats away the value of put positions.
So let's talk about what makes shorting a stock like Micron so tricky.
This Micron Chart Is Insane
Historically, memory and storage have been highly cyclical.
But thanks to the AI boom, demand is outstripping supply like never before.
Micron can't even meet half of customer demand, based on comments from a KeyBanc conference. Customers are insensitive to memory prices, and some are signing deals out to 2030.
This supports the "this time it's structural, not cyclical" argument.
And if we look at historical earnings for Micron, you can see how things have changed.
In the last two cyclical earnings peaks, Micron earned:
-$2.59 per share in Q3 2022
-$3.53 per share in Q4 2018
But in Q3 of 2026 the company earned $25.11 per share.
By shorting Micron, you are saying this is the peak.
But look at that chart again.
If Micron can earn $25 a share in a quarter, how can you count out $50? Or $100?
And the memory/storage boom is just one reason...
Earnings Season Has Been Amazing
Q2 earnings season has been absurdly strong, according to FactSet data.
Q2 revenue growth is tracking at 15.0%. Back on June 30, analysts expected just 12.2% growth.
This is the highest since Q4 2021, when the economy was rebounding from the Pandemic lows.
The tech sector has been a major contributor with 35.9% growth thanks to huge numbers from AI-driven names like the aforementioned Micron and SanDisk.
We can always say the most obvious thing in the world:
"It can't get much better than this."
But even 3 years ago, people were saying the AI bubble was going to pop.
And AI spending just keeps going through the roof as companies trip over themselves to buy servers, GPUs, memory, and other hardware.
Speaking of SanDisk...
4 Reasons SanDisk Is KING
SanDisk's Thursday Investor Day was going well.
And then the company said it would return 100% Excess Cash to Shareholders.
Then things started going REALLY well.
The stock took off like a rocket:
That was great for my 1,000 shares of SanDisk!
Oh, excuse me. That was a typo.
I own 1 share of SanDisk. (as in ONE)
But the bull case here is obvious:
- Solid revenue growth back by long-term customer agreements
- Dirt-cheap valuation
- Super-high margins and cash flow
- The company will buy back tons of stock in the years to come
Of course, it's hard to chase a stock that's up 587% year-to-date. (my entry was $1,587 so I'm not pretending I caught it early)
BTW, you can get David Prince's takes on SanDisk and the AI landscape here:
Traders Are a Little Bearish
The AAII Sentiment Survey shows that investor sentiment is just all over the place week to week.
34.7% of investors are bullish, which is slightly below the long-term average of 37.5%.
Technically, this is the fourth straight week of below-average bullishness, despite a string of all-time highs.
I take this as positive, because it implies there is still a lot of doubt facing this market.
Meanwhile, CNN's Fear & Greed Index is at 65/100, signifying modest Greed:
See you next week kids!
