The Open
US inflation cooled on paper. The PCE price index was up 3.4% from a year ago, below the 3.7% expected, and core PCE was 3.0% against a 3.3% forecast. Most of that miss comes from the government changing how it measures prices. It reworked the math for software, legal services and portfolio management, which cut July's core reading by about 0.36 points retroactively. The 10-year yield rose to 5.29% anyway, so the bond market isn't buying the improvement.
Germany ran hot, but on fuel. German inflation rose to 3.3% in September from 2.9%, above forecasts. Energy prices were up 14.9% from a year ago, driven by fuel prices tied to the Iran war. Core inflation, which excludes food and energy, held at 2.4%. This is an oil problem, not a broad inflation problem.
Micron reported after the close. Revenue was $54.2 billion, guidance was $61.5 billion, and the stock is down about 1% after hours anyway. More on that below.
Featured
Micron (MU) — $1,065.11 close, ~$1,050 after hours
The setup: Micron beat on everything. Revenue of $54.23 billion topped the roughly $51 billion analysts expected. Adjusted EPS of $33.42 beat the roughly $31.50 consensus. Next quarter's guidance of $61.5 billion is about $4.5 billion above what Wall Street had modeled. Revenue is up 379% from a year ago. Data center customers now make up 63% of sales.
The stock slipped anyway.
The number that matters: 86.25%. That's next quarter's gross margin guidance, and it's below this quarter's 87.0%. Revenue is still growing, but more slowly: up 31% last quarter, guided to up 13% next. Margins have stopped expanding. The CFO has already said that further price increases add less and less to margins. In memory, margins flattening has usually meant the top of a cycle, and that's what the market is pricing in.
The thesis: At about $1,050, Micron trades at roughly 7 times next quarter's guided earnings, annualized. That multiple says this is a peak. Maybe not. Nobody knows how long this cycle runs, and right now the demand signals still point up. The data centers were the first wave. Consumer AI agents like Muse and Instinct look like a second source of demand for memory. And this cycle has something past memory booms didn't: customers have signed multi-year take-or-pay contracts, meaning they pay whether or not they take delivery. That should cushion the downside in a way past cycles never had. Flat margins at 86% may be less a warning sign than a ceiling most chip companies never reach.
What kills this thesis: Micron guides revenue down from one quarter to the next, or a major customer renegotiates its contract. The first means demand has actually peaked. The second means the contracts aren't the cushion the bull case is counting on. Either way, the market's 7x was right.
Movers & Watchlist
Ticker | Move | Last | Take |
|---|---|---|---|
MDB | +3.39% | $348.61 | Top gainer on our list. Database software kept its bid. |
U | +3.05% | $40.93 | Unity and RBLX both rose, a good day for gaming names. |
RBLX | +2.89% | $42.37 | A partial bounce after last week's slide. |
SNOW | +2.80% | $339.56 | Data software rose with MDB. |
APP | −4.98% | $290.43 | Worst on the list. Today's data has no catalyst. |
TOST | −4.83% | $28.99 | Second-worst, and a second straight weak session for fintech. |
CEG | −3.99% | $254.02 | Nuclear power fell on a day when the 10-year yield rose. Utilities feel rates. |
HOOD | −3.20% | $112.50 | Retail brokerage fell with TOST. |
Quick Hits
Micron beats on earnings and issues strong guidance as data center revenue jumps 11-fold — CNBC's writeup of the report behind today's Featured.
Not Even the Massive Changes of Methodology Can Get PCE Inflation Back into the Bottle — The skeptic's read on today's PCE: strip out the new math and inflation isn't cooling.
Meta stock enjoys best month since 2022 on AI momentum — One reason the Nasdaq-100 finished green while the S&P 500 didn't.
Pat Gelsinger Just Backed a $100 Million Challenge to Nvidia's AI Networking Moat — A long shot, but networking is where Nvidia's lock on AI data centers is least complete.
Crude exports through the Strait of Hormuz hit prewar levels — More crude supply helps the inflation picture. Fuel shipments are still constrained.
P.S. Hit reply and tell me: do you own Micron, and are you holding through this? I read every reply.
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