Written by: TideResearch
Author: Rita
TideResearch Insights
J.P. Morgan expert Joshua Meyers released a report on June 21, synthesizing findings from a survey of buyer sentiment ahead of Micron's earnings, feedback from pre-earnings checks with hardware companies, updated AI capital expenditure forecasts, and key developments for several major companies. The core message conveyed in the report: The memory sector where Micron operates remains the most consensus-driven long position within the AI segment, but the sustainability of high gross margins and valuation methodologies are sparking discussion. Within the hardware supply chain, AI-related demand for servers, networking, and storage remains robust, but divergence is emerging among individual stocks. Suitable for investors tracking the U.S. stock hardware and semiconductor sectors.
Three Key Takeaways
1 Buyer sentiment remains strong ahead of Micron's earnings, but two issues are simmering.
Meyers notes that memory is one of the most consensus-driven long positions in the tech sector and across the broader market. AI demand continues to improve, recently buoyed by unexpected growth in demand for agent CPUs, and the average selling price (ASP) has been ticking up with each industry survey. Demand has indeed been somewhat disrupted, but supply-side responses remain relatively measured. The market generally expects Micron to announce more Supply Commitment Agreements (SCAs) in this earnings report, with roughly 75% of surveyed buyers anticipating new contracts. The market's focus is on: Micron's gross margins have exceeded 80%, sparking debate; how the company views the room for AI applications to further drive ASPs; and the level of detail that can be disclosed regarding the specific terms of the long-term agreements.
2 Pre-earnings checks with the hardware supply chain: AI-related demand robust, clear stock divergence.
Meyers summarizes pre-quarter communications with hardware and networking equipment companies. Celestica's (CLS) margin outlook has improved, showing greater confidence in AI networking projects. Western Digital and Seagate benefit from continued pricing improvements, with no need to concede pricing during product generation transitions in a supply-constrained environment. Fabrinet's (FN) visibility on growth in its AI optical module business has increased, with Amazon-related products starting to contribute revenue this quarter and gradually ramping up. Teradyne's (TER) revenue is expected to decline sequentially in the second half of the year, but Google is likely to become a new VIP compute customer by year-end, representing a significant incremental contributor for the following year.
3 AI capital expenditure forecasts raised again, 2027 WFE market growth seen at 29%.
J.P. Morgan's global semiconductor team has raised its 2026 Wafer Fab Equipment (WFE) market growth forecast from 21% to 28% (equivalent to $155 billion) and its 2027 forecast from 18% to 29% (equivalent to $200 billion). DRAM, TSMC, Intel Foundry, and Samsung Foundry are the primary sources of the increase. The investment and financing model for AI infrastructure is also evolving, with the debt financing proportion at the project level having risen to over 85%. Considering that the market value of projects post-construction significantly exceeds their build cost, the actual loan-to-value (LTV) ratio is only about 60%, indicating that financing constraints on the expansion of AI capital expenditures are weakening.
The Supply Chain Signal Behind Celestica's Improving Margins
Among the pre-quarter communications with the hardware supply chain, Celestica's (CLS) feedback deserves special attention.
Meyers points out that Celestica had previously expressed concerns about Tomahawk (Broadcom switch chip) pricing, but its tone was noticeably more positive during this communication. The company is more confident in its ability to pass on costs through price increases and is also vying for more rack-based AI networking projects, which offer thicker margins. The market expects its FY26 operating margins to continue expanding, possibly by 10 to 20 basis points. The outlook for FY27 is even more optimistic, with the potential for stable margins combined with operating leverage to prompt more positive guidance in the next earnings report.
Regarding AI chip supply, Celestica works with both Broadcom and MediaTek, and its confidence in the supply chain is markedly stronger than that of Arista Networks, as hyperscale customers are receiving higher supply priority. This signal suggests that demand dynamics for AI networking equipment are still consolidating around leading suppliers, with supply chain allocation capabilities becoming a competitive moat.
Short-Term Focus on Earnings Validation, Long-Term Focus on Valuation Anchors
Micron's earnings report is the most immediate catalyst. Market consensus has largely priced in a strong quarter. The real variable lies in the level of detail provided about long-term agreement disclosures. If the coverage ratio of SCAs allows the market to gain clarity on future revenue visibility, Micron's valuation logic could undergo further reshaping.
Another key variable for the hardware sector is the pace of demand. Distributors like CDW report that a significant portion of the current robust demand for servers and networking equipment stems from customers placing advance orders due to concerns about potential further tariff hikes. How long this pull-forward demand can persist is the biggest uncertainty for the hardware sector in the second half of the year.
Three Signals to Track:
The level of detail in Micron's SCA disclosures and its gross margin outlook. Whether Arista Networks can raise its full-year guidance in its next earnings report. Whether Fabrinet's Amazon optical module revenue can ramp up as expected to $250 million per quarter within a year.
Disclaimer
This article is TideResearch's compilation and interpretation of a third-party brokerage research report. The ratings, price targets, earnings forecasts, and related judgments cited herein represent the views of that brokerage's analyst, reflecting solely the position of their affiliated institution. They do not represent TideResearch's views and do not constitute any investment advice.
Please note three points while reading: First, price targets are analysts' expectations for approximately the next 12 months; they are predictions, not promises, and will be adjusted repeatedly based on performance and market conditions. Second, sell-side research reports inherently lean bullish, and some covered companies may have investment banking relationships with the brokerage. Third, the value of a research report lies in its core logic and underlying assumptions, not solely in a specific price target. Focus on the logic, not just the price.
The market carries risks; decisions should be made independently. This article should not be used as the basis for trading any securities.
Data source: J.P. Morgan Research Report (Joshua Meyers et al., June 21, 2026) · Company public disclosures
TideResearch · June 2026
