A Market Climbing on the Back of Memory
Equity markets are once again grinding out record after record, and the composition of leadership tells a clear story about where conviction is building. Information technology has been the dominant sector, propelled in particular by memory-chip names that have caught a powerful tailwind. Industrials, especially those with direct exposure to the artificial intelligence theme such as GE Vernova and Caterpillar, have added supportive strength. Communication services has at least held its ground, and the resulting combination is keeping the technical trend of higher highs and higher lows firmly intact.
What is striking is how thoroughly the market has shrugged off the Iran conflict. The VIX is trading around 17, which still implies a daily move of slightly more than one percent in either direction. That is meaningful for traders — there is enough premium to justify either long-volatility positioning through calls and puts, or premium-selling strategies. It is, in other words, a constructive environment for active participants. Unless something genuinely shifts the geopolitical calculus in a way the market is forced to price in, the broader uptrend looks resilient.
The Coming Wave of Passive Rebalancing
A subtle but important catalyst is approaching. With May ending and June beginning, passive index funds will face a rebalancing window. Many of these funds have lagged the market because they have not yet captured full exposure to outperformers like Micron and other memory names. When that rebalancing flows through, the result could be additional fuel for both the smaller constituents of the S&P 100 and S&P 500 and the largest names — Apple, Micron, Western Digital, and others — that stand to receive concentrated inflows. This mechanical bid, layered on top of fundamental demand, can amplify moves that already have momentum behind them.
Micron's Rerating: From $535 to $1,625
The single most dramatic recent development is a sharp upgrade of Micron's price target by UBS, lifting it from $535 to $1,625 — now the highest target on Wall Street. The stock has rallied roughly 35–40% from Friday to Tuesday on the back of this revision. The bull thesis rests on several pillars. Free cash flow and revenue growth are now visible out to 2029, supported by the long-term supply agreements Micron has inked with large customers. There is also a structural shortage in DRAM supply, which hands the company genuine pricing power. And as AI models grow more complex and data centers continue to expand, demand for both high-bandwidth memory and hard disk drives should keep climbing.
In part, this rerating reflects analysts being behind the curve and catching up to fundamentals already on display. But the supporting data is real, and the run has been astonishing in scale: Micron now sits only about 3.25% away from overtaking Berkshire Hathaway in market capitalization, an extraordinary statistic that captures just how rapidly capital has been redeployed into this name.
The Chip Trade Rotates Beyond GPUs
Across the chip sector, all systems appear to be on. FOMO is clearly part of the dynamic, but there is also a real rotation in the underlying narrative. GPUs remain in short supply, yet the marginal trade right now is increasingly about CPUs, high-bandwidth memory, and hard disk drives — the unsung components needed to actually build and operate data centers at scale. As inference workloads grow more demanding, the dependence on DRAM, hard drives, and CPUs becomes more acute, and that is where the structural shortage is most visible and where capital is flowing.
Nvidia, meanwhile, is up modestly in the pre-market but is no longer the sole protagonist. It continues to make significant strategic moves, including plans to invest roughly $150 billion per year in Taiwan and the opening of a new headquarters there. Yet the market is increasingly looking past it for the next leg of the AI trade. There is a reasonable question about whether this memory rally is already long in the tooth — but it is worth remembering that when Nvidia first began its parabolic ascent two and a half to three years ago, observers also assumed the run would end after a month or two. Instead, it consolidated and continued, ultimately becoming the largest stock in the S&P 500. These thematic trades can persist far longer than skeptics expect. Combined with Micron's relatively low float and the looming passive rebalancing in June, the setup makes shorting the trade difficult.
A Sharp Counterexample: Zscaler Under Pressure
Not every name in the broader tech complex is participating in the rally. Zscaler has been hit hard following its quarterly results, falling around 25% in pre-market trading. The headline numbers were not the problem: third-quarter revenue came in at $850.5 million versus Street expectations of $835.6 million, annual recurring revenue grew 25% (or 21% excluding the Red Canary acquisition), and operating margin reached an all-time high of 23%. Adjusted earnings per share also beat expectations.
The issue is the trajectory. The company is ramping up expenses and capital expenditures, which will pressure free cash flow in the near term. Forward guidance came in around $887 million, below where the Street was looking at the midpoint. More fundamentally, investors are asking whether Zscaler is losing market share to larger competitors like Palo Alto Networks and CrowdStrike. Better profitability cannot sustain a stock indefinitely without accompanying top-line growth, and that combination — rising spending, decelerating revenue growth, and competitive pressure — is what is driving the harsh reaction. Aggressive pre-market drops of this magnitude often see some scalp-buying after the first hour or two of regular trading, but the underlying questions about the franchise will not vanish that quickly.
Levels to Watch on the S&P 500
With the index sitting at fresh record highs, key levels matter. On the downside, the relevant zone sits at 7480, while the upside target is 7570. The most heavily traded contracts at the moment are weighted slightly toward puts, suggesting some positioning for a minor pullback. But the bigger picture remains intact: higher highs and higher lows, supported by the memory trade and increasingly by industrials tied to AI infrastructure. Until a genuine inflection point emerges — geopolitical, macroeconomic, or otherwise — the market is offering very little for the bears to work with.
The Bigger Picture
What is unfolding is a meaningful evolution of the AI trade. The story is no longer just about GPUs and the marquee names that dominated the first wave. It is about the entire physical stack required to make AI workloads function at scale: memory, storage, CPUs, power, and the industrial capacity to build out data centers at unprecedented speed. The structural shortages in those areas are real, the long-term contracts give visibility through the end of the decade, and the passive flows are about to layer on top of fundamentals that are already in motion. AI is firmly back in the driver's seat of the market — but the steering wheel has shifted toward memory and infrastructure, and that is where the next chapter is being written.