Chip stocks hit $1 trillion — but rising yields could spoil the party | Morning Bid

Añadido: 2026-05-28

[00:00:02]Today, the chip stock frenzy goes on as Micron Technology and South Korea's SK Hynix enter the $1 trillion club.

[00:00:09]And [music] another trillion-dollar company, Samsung, surges 6% as it reaches a deal on worker bonuses.

[00:00:15]But, there are growing signs that rising borrowing costs could spoil the equity [music] party.

[00:00:21]This is Reuters Morning Bid, bringing you unfiltered market news and analysis straight from the Reuters newsroom 7 days a week. I'm Mike Dolan in London.

[00:00:29]And I'm Anna [music] Szymanski. It's Wednesday, May 27th.

[00:00:34]Well, Mike, the news flow over the last 24 hours has actually been relatively slow, mainly because it's a holiday week for much of the world, but one story continues. The tech boom, the AI boom, just continues to fuel equity markets.

[00:00:49]There's nothing slow about these chip stock moves. They are blinding.

[00:00:55]It is uh um loads of milestones and and records being being hit. Uh but, just looking at Wall Street yesterday, Micron Technology, at least briefly, topped that $1 trillion market valuation. Uh market's now one of um 11 US companies or US-based companies uh in that club. And it's it's it's up just look at where it's doubled since over the last year. I think to get that in context, it's up about tenfold in in stock price, give or take. I mean, these things are moving. Yesterday, we moved 20% on that stock or almost. Um so, if you think that's a Wall Street frenzy, just look around the other side of the world. Today, we got uh SK Hynix, one of the big memory chip maker in in uh South Korea, uh also entering that territory, above a trillion dollars market cap. And of course, its rival, Samsung, had reached that earlier in May.

[00:01:49]Um there was an additional whoosh behind the South Korean move, which lifted the KOSPI, the overall index, about another 3%, which was uh a deal that Samsung has reached with its workers on paying huge bonuses to particularly the memory chip workers who are you know at the at the vanguard of the of its enormous profit build out. And you know, some of those bonuses it becomes a really interesting story about both the labor relations in South Korea which is an interesting story in its own right, but also generally speaking about the huge profits that are being created by these divisions and how they're being shared with workers. Some of the workers who will benefit from this bonus payout will be receiving over $400,000 worth.

[00:02:35]And more generally it's about 50% of of salary. SK Hynix itself was already kind of forcing the issue by paying very big bonuses to its workers. So whether this remains a South Korean story or whether we see the huge profits generated by these chip stocks suddenly in the last year or two suddenly being shared with its workforces is going to be an interesting question. Well, and I think the issue of these just enormous profits being created also helps put some of these stock moves into context because when you hear tenfold moves, these just really enormous moves we've seen in the last two years and especially the last year, it can start to sound like what we saw in the late 1990s with the dot-com boom, but there is a big difference here. And the big difference is that these companies are just generating huge profits, so much cash. So that does suggest that maybe these moves aren't as frothy as they might appear. Yeah, and I suppose what will happen is people will start to look ahead. I mean already [clears throat] Samsung and SK Hynix for example are setting aside chunks of their of their incoming profit. You know, we're talking about 200 billion or so for for Samsung this year.

[00:03:51]That that setting aside percentages for the bonus pool. Um, so so it will have to become a mathematical calculation as to as to as to how much of that needs to to go around. But but but I do think it you know it will be interesting to see whether that is replicated elsewhere. It's not clear that anything of that scale is going on or being demanded say for example in the United States, but uh perhaps that's uh that's something to watch out for. Uh and in terms of valuations, yeah, again, uh much like the Nvidia build out that we watched over the last two or three years, uh if you look at the forward price earnings valuations, they they they they don't look stressed at all because the uh forecasted earnings are so enormous that these chip price moves are just um catching up in some respects with the with the demand. And also when we watched Nvidia, we watched very much about chip design in the these super dupers Donald Trump called them uh chips that the Nvidia was designing uh for for that AI build out. But this is basic memory chip uh demand and there is a shortage and and this is creating enormous price rises for these chips, which speaks a little bit to the kind of uh the the heat that the AI build out is creating and the heat that will in you know most likely start to feed its way into the cost of the goods that use memory chips for example over time cuz there is a shortage there. And that shortage and price rises will feed the inflation story that's going on as well.

[00:05:21]So, speaking of rising costs, one area that maybe could spoil this equity party is borrowing costs. We're seeing borrowing costs rise, of course, globally. We're certainly seeing that in the US. And you know, you wrote about this in your your latest piece that it appears that we could be reaching a level where bond yields are actually going to start to weigh on equities.

[00:05:43]Yeah, I think the story of May has been that uh you know, the the the AI builder keeps going on. That's that that that it's impressive how how little attention it's paid to the Iran oil shock story.

[00:05:57]But, the bond market has has has started to rear up and become very focused on the implications of this energy shock, not to mention other parts of the of the heated global economy that we've just talked about. But, uh in May, we've seen a very sharp rise uh in long-term borrowing costs uh particularly in the United States for the 10-year and the 30-year government bond yields surged over the last couple of weeks. But, equity markets continue to move with them for the most part uh and the question is, can equity market equity prices and uh government borrowing costs uh and borrowing costs across the economy go up in tandem continuously? And for that, people look at something called the equity risk premium, which anyone who uh puts stocks and bonds in their portfolio will be familiar with. It's simply a calculation on what's the return on your equity portfolio relative to the risk-free rate. So, the the rate on the government bond is called risk-free simply because you get paid back at par at the end of a at the end of it almost certainly. Um but, uh those calculations differ. Everyone has their own models. All sorts of methodologies. Uh but, many of them are coming in now on a level where about 4.5% for 10-year US government borrowing, certainly according to Société Générale's uh model, uh is is a critical juncture. They reckon that above that level of borrowing costs, it becomes a challenge for equity to keep going cuz simply it it it will be uh the potential return, based on their model, of of your equity portfolio going forward will not be strong enough. And that's about a a 3 and 1/2 3 3 to 3 and 1/2 percent uh equity risk premium that they would see is a point historically where equity starts to underperform bonds and there's a switching that goes on. So you can take all the models and JP Morgan have one as well which says that we're already at that lowest equity risk premium since 2007 since before the great financial crash. You can look at many different ones but they're all starting to flash red. Now can AI sweep that aside? It's swept everything aside for 3 years. It has ignored every crisis every trade tariff crisis every geopolitical crisis even worries about the economy itself.

[00:08:20]Can it continue to push aside basic long-term portfolio metrics like that?

[00:08:25]It's a big question and it's going to be a hot summer and trying to engage with that case.

[00:08:39]For more on how the bonds may start to compete with stocks in portfolios check out Mike's latest column. The link is in the show notes. And for more of any of today's stories head to reuters.com or the Reuters app.

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[00:08:56]We'll be back tomorrow.