Fears about a pullback in AI-related stocks have been banished after Micron Technology’s results implied all is well in tech land.
The company has reported a surge in profit and said supply tightness in the memory chip market will continue beyond next year.
That put a rocket under Micron’s shares which jumped 16% in pre-market trading and took sector peers SanDisk, Western Digital and Seagate along for the ride. A shortage of supply and increased demand have led to a surge in memory chip prices, which is great for the likes of Micron’s profits but bad for the companies who need the components.
The market has lapped up Micron’s figures and futures prices imply a ticker tape parade when Wall Street opens. Nasdaq futures point to a 2.2% jump in the tech-heavy index, with the S&P on track for a near-1% jump at the market open. The chip sector is highly cyclical so it’s imperative that investors do not expect the boom times to last forever.
European markets were more conservative in their gains, with only a small advance despite oil prices now trading at pre-Iran war levels. Brent Crude fell 1.5% to $72.65 per barrel, much to the relief of businesses and consumers.
FTSE 100 investment trust 3i Group jumped 10% after saying that its main holding is doing well. 3i is a play on Dutch company Action and news flow from this discount retailer had recently disappointed. 3i now says Action is expected to deliver strong profit growth this quarter, helping to win back the market’s favour.
Value investor Phoenix has called for housebuilder Barratt Redrow to spend more cash on share buybacks, calling it ‘an exceptional opportunity’ on the current valuation. Investors have latched onto the news and bid up the shares in hope the housebuilder will respond positively.
Halfords
Halfords’ results show the business is putting the pedal to the metal with its network of garages acting as an engine for growth.
He may only have been at the wheel for a little over a year, but CEO Henry Birch is already making a big difference as Halfords returns to profit and unveils its strongest margins in a decade. This has been achieved by selling fewer products at a discount, suggesting Halfords has got a handle on inventory management.
Appropriately enough, Halfords’ bike sales are always more cyclical than its auto services and products, but the company is riding an upswing in demand after the post-Covid lows.
Despite a tricky consumer backdrop, demand has been resilient with the momentum seen in early spring continuing into the summer.
Halfords’ shareholders have experienced ups and downs over the years so may remain wary, but strong cash generation and improved profitability will create hope that the business is on a sustainable path.
The market seems to be unfazed by the change of chair, with Jock Lennox coming in to replace Keith Williams.
Moonpig
Turns out pigs can fly after all, as online greetings card outfit Moonpig delivers a stellar set of numbers under new CEO Catherine Faiers.
Earnings came in ahead of expectations and were backed up by strong cash generation.
This has enabled the company to launch a new £65 million buyback programme which may help secure some patience from investors while margins are pressured by investment in delivery infrastructure improvements.
Moonpig has been successful at getting people to buy gifts alongside cards and in encouraging people to sign up to its subscription service to drive repeat business.
The problem child for Moonpig is its experiences arm which is not matching the robust performance of the rest of the group. Management are taking steps to fix this situation, and the market will be watching closely to see if these efforts bear fruit.
H&M
Questions will be raised about H&M’s turnaround strategy after another disappointing trading update from the retailer.
Demand is depressed in an environment where households are reining in their spending, and this has been exacerbated by stock and inventory controls which meant H&M was unable to meet some of the demand that did exist.
In trying to increase its operational discipline H&M has fallen on this front and that will be a source of frustration for shareholders.
With demand expected to remain subdued in the near term there’s not a huge amount to enthuse the market, although an improvement in gross margins is one positive for investors to cling on to.
EasyJet
Dan Coatsworth, Head of Markets at AJ Bell, comments:
EasyJet has changed its tune regarding a takeover. While another bid from Castlelake has been rejected, EasyJet is to give its suitor more data on which to carry out due diligence. The airline is effectively saying ‘here’s more information, now make a proper offer’. That’s very different to its previous stance of saying ‘go away, we’re not interested’.
Castlelake is acting like someone at an auction who will keep bidding until they get what they want. Whereas many takeover situations fall apart quickly because the bidder shows financial discipline and will only pay so much, four bids in quick succession from Castlelake implies it is deadly serious about getting the prize.
EasyJet founder Stelios Haji-Ioannou and his family are still the biggest shareholders in the airline and are unlikely to accept anything other than top dollar for their stake.
It would be a shame to lose EasyJet from the UK stock market. It is exactly the type of company that resonates with the public looking to invest in brands they know and trust. EasyJet has good long-term growth prospects, is a well-run business, and pre-bid situation traded on an attractive valuation – all things desired by investors when looking for opportunities.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
