Just as investors grew jittery over lofty valuations, Micron (MU) delivered the blockbuster outlook needed to keep the AI rally alive.
But while chipmakers celebrate soaring hardware prices, the rest of the tech sector is left holding a very expensive bill.
The memory chipmaker's blowout earnings and guidance last week reassured investors that AI spending remains on track. It sent AI bottleneck stocks higher, strengthening the case for further upside in the S&P 500 (^GSPC).
"Can the spending continue — is there enough capital to continue to fund all this? And Micron came out and basically said yes, yes, there is," Sevens Report Research founder Tom Essaye told Yahoo Finance on Thursday.
Essaye noted that despite Micron's massive earnings growth, the stock still trades at around 10 times forward earnings, roughly half the multiple of the broader S&P 500.
That valuation gap has reflected investor concerns that the AI boom may not be sustainable.
"If investors believe it will last, which Micron's earnings helped reinforce that idea, then this market has a lot more room to run," Essaye said.
Still, the market has seemed on edge, awaiting any pin-like catalyst that could send stocks lower.
Semiconductor stocks reversed course on Friday in reaction to Apple (AAPL) and Microsoft (MFST) raising prices on some products due to surging memory costs. Additionally, OpenAI may reportedly delay its IPO until next year to have a better shot at reaching a $1 trillion valuation.
"I think the sort of natural tension point is around fundamentals and the trajectory of growth," PNC Asset Management Group chief investment officer Amanda Agati told Yahoo Finance.
"We don't view this as a bubble that's likely to pop anytime soon — just a rally that has just gone on and on and on, seemingly unabated," she said.
Cracks in the "Magnificent Seven" stocks have already begun to form amid concerns about rising capital expenditures.
The 'Magnificent Seven', plus Broadcom (AVGO) and Oracle (ORCL), have lost roughly $2.7 trillion in market value in June, according to a Yahoo Finance analysis, as investors are scrutinizing the companies funding the AI build-out.
Yet some strategists don't see the tech giants pulling back.
"Valuations are a little rich, to put it mildly," said Strategas founder Jason DeSena Trennert. "By the same token, I think that there's more of a risk for the CEOs of these companies, actually, to not spend on this technology than to spend on this technology and lose money."
Given that AI productivity and return on investment are yet to be measured, investors have continued to favor AI bottleneck and build-out related stocks.