The chipmakers that had their worst session since 2020 on Friday (Micron, Broadcom) were Monday’s best performers, up 6.5% by midday. Wall Street appears to consider Friday as a welcome easing off of a record-setting rally, as opposed to a genuine repricing of the AI trade that other analysts warned of.
“Last week didn’t derail the rally, but it may have made it more sensitive to negative surprises in the near term,” Larkin wrote in a note.
Warsh, he added, should “do whatever he wants.”
Treasury yields barely moved Monday, which shows markets are looking more towards inflation, Larkin says: data that will come out this week as the May CPI comes in on Wednesday and PPI Thursday. The Fed is already in its pre-meeting blackout, so there are no officials to talk the numbers up or down. If inflation runs hot, the surprise Larkin described might arrive on schedule.
The other variable is the war in Iran. Even as fighting intensified over the weekend—Iran struck Israel overnight in retaliation for Israeli attacks on Lebanon, and Israel struck back—by Monday morning in New York both sides had pledged to de-escalate. The markets could be pricing in an end to the war in Iran, though crude jumped more than 4% on the strikes before trimming the move to about 1.5%—hardly a market pricing in peace. If there’s another flare-up, it could also disrupt the AI rally.
Not everyone takes the number at face value: Morningstar said it values the company at less than half its target. The question under the chip rebound and the question under the IPO are the same one: whether AI demand justifies the price. But Friday will give one real answer.
