The Chips Are Down, the Mags Are Up as the Pendulum Swings
Trump’s defense of data centers helps the market bounce back from an ugly morning.
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The Magnificent Seven (MAGS) stocks gained 2.3% on Wednesday, with the major hyperscalers rising around 3%. The driver was memory pricing. The semiconductor sector (SMH) sagged 1.6% with Micron (MU) dropping over 8%.
The story that has been building for weeks is that memory prices are set to weaken as Korea ramps up capacity and the buyers push back on the suppliers. Lower memory prices are bad for the chip makers that have enjoyed the pricing power, but they are good for the hyperscalers that have been paying the elevated prices. Wednesday that split was clear. The suppliers went down and the buyers went up.
The Bifurcation Flips
This is the same bifurcation I have been writing about since the Micron report, but it is now running in the other direction. For weeks the story was that the memory suppliers captured extraordinary margins while the hyperscalers absorbed the costs. That was great for the chip stocks and a growing problem for the Mag 7 names that had to fund the buildout at premium prices.
Now the pendulum is swinging back. If memory prices ease, the suppliers give back some of the pricing power that drove their record quarters, and the buyers get relief on the input costs that have been squeezing their margins. The chips down and Mags up action Wednesday is the market pricing that shift.
Whether this is a trend or just ongoing volatility we can’t determine at this point. The Korea capex commitment, buyers building their own chips, and the diversification away from the memory cartel all point toward easing memory prices over time. Wednesday the market embraced that thinking and buyers will be looking for more Mag 7 upside.
Trump Defends the Data Centers
The other notable development was political. Tuesday, New York became the first state to pause large data-center construction with Governor Hochul’s executive order halting projects over 50 megawatts. Wednesday, President Trump fired back, calling it a terrible decision and demanding the state reverse it immediately.
Trump fast-tracked data-center permitting last summer and has been offering loans, grants, and tax incentives to accelerate projects. So we now have the federal government pushing data centers forward while a major state tries to slow them down. That tension is going to play out across more states as the power demands of AI collide with local concerns about grids and utility bills. It is another reason the data-center names face an uncertain path even though the long-term demand is there.
Strategy
I continue to maintain high cash levels and a defensive posture. The chips down and Mags up split is interesting but it does not change the bigger picture, which is a market without clear leadership churning through a lot of news.
Biotechnology reversed to the upside after more selling this morning and that will help the process of building some technical support. There are a number of names I am close to adding as we move into earnings season.
It is still early, but earnings season is producing some dislocations that will create entries, but the good ones are likely to be in technology names in the next two weeks. IBM (IBM) was a landmine Tuesday and there will be more. I am staying patient and am feeling optimistic about the trading opportunities that lie ahead.
Have a good evening. I’ll see you Thursday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
