Key Points
Intel surged nearly 12% on reports that Google, Nvidia, and Tesla are considering its chip manufacturing services.
Micron jumped over 10% despite news that Nvidia is partnering with rival SK Hynix for memory chips.
Wednesday’s CPI report and Oracle earnings will set the tone for the end of the week.
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After Friday’s tech wreck sent the Nasdaq Composite (NASDAQINDEX: ^IXIC) index tumbling 4% and vaporizing over $1 trillion from semiconductor stocks, Monday’s market looks a lot friendlier. Chip stocks are back in the driver’s seat, and investors are largely pretending last week’s panic never happened.
The Nasdaq Composite has gained 1.5% as of 12:46 p.m. ET, clawing back some of Friday’s painful losses. The S&P 500 (SNPINDEX: ^GSPC) is up 0.8%, while the Dow Jones Industrial Average (DJINDICES: ^DJI) is barely in the green at 0.2%.
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Trillion-dollar tech giants are doing the heavy lifting here. The equal-weighted Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) is only up 0.2%, far behind the cap-weighted versions of the same stock list. In other words, megacap stocks are having a party on an otherwise quiet market day.
Why chip stocks are leading this market rally
Chipmakers Intel (NASDAQ: INTC) and Micron Technology (NASDAQ: MU) are the standout performers today.
Intel’s stock is up 11.8% on reports that Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Nvidia (NASDAQ: NVDA), and Tesla (NASDAQ: TSLA) are at least considering Intel’s manufacturing services for their future AI accelerator chips. In the case of Alphabet, the Google parent reportedly placed a firm order for 3 million AI chips. Tesla is more interested in using Intel’s chip-building technology in its own fabs, but license royalties can also be lucrative.
Nvidia is the main driver of Micron’s big jump. CEO Jensen Huang is securing long-term memory chip contracts with Micron rival SK Hynix, and semiconductor investors are taking this move as a good sign for memory makers in general. Nvidia is known to include the Big Three memory makers in its AI accelerator designs. A tighter partnership with SK Hynix might tilt the balance of order volumes away from Micron and Samsung, but it could also be part of a broader strategy to lock down multiple large-scale supply channels.
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I don’t have much to say about the Dow today. Among its 30 components, only Cisco Systems (NASDAQ: CSCO) moved more than 2% as of this writing, adding just 22 points with a 3% gain. Goldman Sachs (NYSE: GS) made a bigger difference of 82 Dow points, though its 1.3% price gain was just normal market noise.
Meanwhile, geopolitics stirred volatility again. Iran and Israel exchanged missile strikes over the weekend, sending oil prices spiking before both sides agreed to cool things down. Brent crude touched nearly $98 a barrel before retreating, and the United States Oil Fund (NYSEMKT: USO) is up 1.6% on Monday.
Keeping it all in perspective
Last week’s sell-off followed a hot jobs report that revived fears of Fed rate hikes, ending the S&P 500’s nine-week winning streak. Today’s bounce is concentrated in the same mega-cap tech names that led on the way down.
The week ahead brings more potential plot twists: Wednesday delivers both the Consumer Price Index report and Oracle (NYSE: ORCL) earnings, while Friday brings SpaceX to the market in what’s expected to be the largest IPO ever.
One day’s rally doesn’t erase one day’s panic, and neither tells you much about where stocks will be in five years. The AI story hasn’t changed since Friday; only the mood has. Long-term investors can safely tune out the drama and check back after Wednesday’s inflation report.
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Anders Bylund has positions in Alphabet, Intel, Invesco S&P 500 Equal Weight ETF, Micron Technology, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Cisco Systems, Goldman Sachs Group, Intel, Micron Technology, Nvidia, Oracle, and Tesla. The Motley Fool has a disclosure policy.
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