Micron’s blockbuster earnings and Apple’s decision to raise prices because of soaring memory costs point to a powerful new force shaping the US economy: the AI boom is beginning to generate fresh inflationary pressures, warns the CEO of global financial advisory giant deVere Group.
The warning from Nigel Green comes as Micron’s stronger-than-expected quarterly results sent semiconductor stocks sharply higher, helping lift the S&P 500, Nasdaq and Dow, while the Federal Reserve’s preferred inflation gauge accelerated to 4.1% in May, its highest annual reading in three years.
Apple’s decision to increase prices on selected Mac and iPad models after AI-driven demand pushed memory costs sharply higher has added another dimension to the inflation debate.
He says: “Markets are celebrating Micron’s exceptional figures, and rightly so. But investors should also pay attention to Apple’s price increases because both stories point to the same conclusion: AI is no longer only creating wealth, it’s beginning to create inflation.
“Micron tells us where the profits are. Apple tells us where the inflation is.
“The race to build AI infrastructure has become so intense that demand for advanced memory is outstripping supply.
“Pricing power is strengthening across the semiconductor industry, and those costs are beginning to flow through to consumers.
“Apple’s decision to raise prices is an early warning that inflation is finding a new route into the economy.”
Nigel Green continues: “For years the assumption has been that AI would lower inflation by making businesses more productive. Long term, I still expect that to happen.
“But first we’re likely to experience the opposite effect.
“Companies are investing hundreds of billions of dollars in AI infrastructure. Data centres are competing with laptops, tablets and smartphones for the same advanced components. Supply tightens, prices rise and consumers eventually pay more.
“Inflation doesn’t always begin with oil or wages. Sometimes it starts with success.”
He says today’s inflation report and today’s corporate earnings are reinforcing the same economic message.
“Today’s inflation report and today’s earnings report are two sides of the same coin. Both tell us the US economy remains exceptionally strong.
“Consumer spending is holding up. The labour market remains resilient. AI investment continues to accelerate, and corporate America is delivering exceptional profits.
“Those are not conditions that normally justify lower interest rates.”
The deVere CEO explains the market’s view of monetary policy has shifted dramatically.
“Earlier this year investors expected several Federal Reserve rate cuts.
“The confidence has faded quickly.
“The bigger question today is no longer how soon rates come down. It’s how long they stay restrictive if inflation refuses to retreat.
“Markets may be celebrating today’s earnings, but policymakers will be studying today’s inflation data just as closely.”
He believes investors should enjoy the rally without losing sight of the broader macroeconomic picture.
“Micron deserves every headline it receives today. But, of course, one company’s outstanding earnings don’t tell the whole story.
“An economy producing inflation above 4%, record AI investment, resilient consumer demand and companies passing higher costs on to customers raises an obvious question.
“Is the economy becoming too hot?
“The Fed’s job is to keep inflation under control, not to support stock market rallies.
“If demand continues to exceed supply across critical industries while inflation remains elevated, there will be little pressure on policymakers to loosen monetary policy.”
Nigel Green concludes: “Markets are celebrating Micron. The Fed will be paying much closer attention to Apple.
“One reflects extraordinary corporate success. The other shows inflation is finding another way into the economy.
“Investors who understand both will be far better positioned for what comes next.”
