Micron leads the big tech sell-off. What the charts show about the next big catalyst
To start this week's column, I clicked over to see this headline on CNBC's homepage: "Stocks fall on global chip rout with Nasdaq off more than 1%, led by Micron." It was about what I expected and a fair headline. Looking at Tuesday's price action, it seems like the market's leading names and industries are, in fact, getting creamed.
However, in the markets, context matters — especially in periods of spiking volatility. To gain perspective on what's happening, why it may be happening, and how to proceed amidst the volatility, I like to step back, take a deep breath, and assess the long-term charts of the markets involved.
As visual investors, we can gain valuable insight when we look at longer-term trends that help us rise above the inevitable near-term noise in this secular AI-driven bull market and stay focused on our longer-term goals. Let's get into it.
This is going to be a chart-heavy column, so I'll do my best with limited writing skills to clearly convey my points. First, year to date, the S & P 500 is up almost 8% and the Invesco QQQ ETF is up 16% — and then things get really interesting.
Taiwan is up 66% in 2026, semiconductors are up 72%, and the iShares MSCI South Korea ETF (EWY) is up about 100%—including Tuesday's sell-off. Amazing.
Asian equities have been on a tear lately, which is driving the Asian-heavy iShares MSCI Emerging Markets ETF (EEM) to a two-decade breakout. EEM top five country weightings: Taiwan: 26.41% South Korea: 23.81% China: 18.93% India: 10.83% Brazil: 3.59% A look at the EEM chart shows a very important development over the last two decades.
The last time emerging markets outperformed the U.S. was during the Global Financial Crisis. We've looked at many incoming client portfolios from prior money management firms with some percentage allocated overseas in the name of "diversification." Well, that "diversification" sleeve has been an underperforming opportunity cost over the last decade and a half.
Being visual investors, we can project that it's no longer an opportunity cost: It's simply an opportunity. We covered this development several times on Feb.10, May 12 and I spoke about it on air May 21, so this has been developing for some time.
The EEM/SPY ratio is turning higher (lower panel) as the EEM chart itself (upper panel) broke out from $55-$60 resistance. In that May 12 CNBC Pro article , I wrote about the artificial intelligence chokepoint that is gaining most of the attention lately: memory.
Besides the U.S. companies serving the insatiable memory demand ( Sandisk and Micron included), the South Korean giants Samsung and SK Hynix are all up massively this year. The memory names in the AI buildout are up an insane amount in the past year: hundreds of percentage points.
A pullback is completely normal. All the market needed was a catalyst or two to begin taking profits on these historic runs.
One catalyst is new Federal Reserve Chairman Kevin Warsh, who is viewed as taking an early hawkish stance as the Fed eliminates forward guidance and the fed funds futures market prices in greater odds of a rate hike as early as this fall. I have serious doubts that's going to happen, but inflationary concerns remain as Treasury yields rise, driving the U.S. dollar higher as well.
None of which, on a traditional global macro basis, is good for the emerging markets trade. But I don't think this is a traditional global macro rotation.
I think this is yet another confirmation that the AI revolution is here: It's global, it's structural, and the rally in both U.S. and international equities reflects pure earnings from the companies powering the revolution. That brings me to the next possible catalyst.
The Nvidia of AI memory, Micron, reports earnings on Wednesday after the bell. Micron is higher year-to-date by 267%.
Profit taking before the earnings report is completely reasonable. After all, the expectations for this quarter are off the charts.
Turning to the financials below, I'll refer to the figures using the color-coded rectangles. In the black rectangle for Micron's report, sales are expected to come in at $35.25 billion, compared to $9.3 billion in the same quarter last year — a 279% growth rate.
In orange, net income is expected to go from $2.1 billion to $23.9 billion, for a tidy 996% growth rate. The green rectangle shows adjusted EPS in Q3 of '25 at $1.91.
On Wednesday, analysts will be expecting $20.28 EPS for a 962% growth rate. Nvidia didn't even see those kinds of growth rates.
Are these growth rates just a 12-month phenomenon? Let's look at expectations for next year.
In the blue rectangle, we're looking at fiscal year revenues of $37.3 billion ('25), $114.16 billion ('26), and an expectation of $196.6 billion ('27). The purple rectangle shows FY '25 EPS of $8.29, FY '26 of $61.73, and FY '27 of $121.77.
That's historic growth. I have no idea what's going to happen following Micron's earnings report.
Here are some key data points to keep an eye on: HBM4 ramp: This is the centerpiece of the Micron bull thesis. Micron began full volume production of their high bandwidth memory 4 for Nvidia's Vera Rubin platform and investors want hard revenue figures on HBM4's contribution to Q3 performance.
The speed that Micron has been ramping HBM4 is double that of HBM3. If that pace held, it would be a major plus.
Gross margin: Consensus is 81.6% for Q3, which if attained will be the highest in Micron's 47-year history. If achieved, that's another major plus.
Q4 Guidance: If management guides Q4 revenue or gross margin even modestly below the whisper number, a stock and industry group this extended can gap significantly lower. High bandwidth memory pricing stability: The bullish case rests on the narrative of a sold-out capacity resulting in stable prices.
Any softening of prices as competitors enter the market would hurt the stock. Heading into the report, we're holding a sizable 4.5% allocation to Micron in our flagship growth portfolio, along with the newly established Roundhill Memory ETF (DRAM) position (which also holds Micron) mentioned in the prior article.
We added Micron to the portfolio at a 3% allocation on Feb. 25, and increased to 4.5% on June 11. We're up roughly 150% on the position since February.
As I said at the top of this article, context matters. If Micron misses on any of the four points laid out above and the stock drops, we'll calmly assess the incoming data and decide how to proceed.
But the gains made in Micron and the overall memory and emerging markets trade have been so significant lately that it's our belief a Fed rate hike scare or an extended memory trade could produce a pullback that will ultimately find support, with new highs to follow. Use the longer-term charts to gain perspective, rise above the noise, and continue to participate in this historic, life-changing AI buildout. -Todd Gordon, Founder of Inside Edge Capital, LLC We offer active portfolio management and financial planning for retail investors, as well as regular market updates like the idea presented above.
Visit us at https://www.insideedgecapital.com/cnbc DISCLOSURES: Todd owns DRAM, MU directly and SK Hynix and Samsung through the DRAM ETF personally and for clients of his wealth management company Inside Edge Capital, LLC. Charts shown are Koyfin.
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