Micron answered the AI question last night. The Fed's inflation answer arrives this morning.

🔵 In the same 24 hours, two things happened that together tell you more about where markets are heading than the entire past week of headlines. Micron delivered the most decisive earnings report of the year after Tuesday's chip rout. And this morning, May PCE — the Federal Reserve's preferred inflation measure — lands at 8:30 a.m. Here is what you need to know about both.

Key Points

• Micron reported fiscal Q3 2026 revenue of $41.5 billion, up 346% year-over-year and 74% sequentially, with gross margins reaching a company record of 84.9% — well above the 81% guidance. EPS came in at $25.11 against a $20.20 consensus. The stock surged 13.1% in after-hours trading.
• Q4 guidance of $50 billion — plus or minus $1 billion — compared to analyst expectations of $42.9 billion. Micron also disclosed 16 strategic customer agreements representing approximately $100 billion in minimum contracted revenue.
• May PCE — the Personal Consumption Expenditures price index, the Fed's preferred inflation gauge — releases this morning. Prior headline PCE ran 3.8% year-over-year in April; core PCE, which strips out food and energy, was 3.3%. A first easing in the energy component could meaningfully shift rate-hike expectations.

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Micron's Earnings: What the Numbers Mean, in Plain Terms

Tuesday's chip collapse sent a question into the market: is AI infrastructure spending real and durable, or is it a story that has gotten ahead of actual demand? Micron answered that question definitively on Wednesday night, injecting fresh life into the AI trade with strong results and an even stronger forecast.

Revenue came in at $41.5 billion — against a consensus of $35.6 billion. That is not a modest beat. It is a 16% outperformance against 31 analysts' forecasts at one of the most anticipated earnings releases of the year. Gross margin — the percentage of each dollar in revenue left after production costs — reached 84.9%, a company record. In a business that was earning 30%–40% gross margins two years ago, that number reflects an extraordinary level of pricing power.

The guidance was the more important disclosure. Q4 revenue is expected at $50 billion, plus or minus $1 billion, versus analyst expectations of $42.9 billion. That single line effectively tells you that whatever demand signal SK Hynix sent when it shifted production away from AI chips last week, Micron's customers are not yet seeing it. The $100 billion in contracted customer agreements — minimum revenue commitments across 16 strategic partners — provides even more structural visibility. Companies do not enter minimum-revenue contracts unless they expect to need the product.

What drove it? Micron's cloud memory business unit alone generated $13.8 billion in Q3 — a 307% increase year-over-year — at an operating margin of 78%. These are the hyperscalers: Microsoft, Google, Amazon, Meta. The companies building AI data centers are buying memory at a pace that continues to surprise even the analysts who follow the sector most closely. The CEO called it an "exceptional" quarter.

For the broader market, the implications are direct. If Micron beats revenue, delivers HBM commentary that signals continued supply tightness, and guides Q4 above consensus, Nvidia, AMD, and the broader memory ecosystem all benefit from the confirmation. That is exactly what happened. Nvidia, AMD, Sandisk, and the full semiconductor complex are all indicated higher in pre-market trading. Tuesday's 10%-plus losses across the chip complex now look like exactly what Schwab's market team described last week: a crowded trade getting stress-tested before returning to its prior trajectory.

This Morning's PCE — The Other Decisive Number of the Week

While Micron was reporting last night, the Bureau of Economic Analysis was preparing the data that will land at 8:30 this morning: May's Personal Consumption Expenditures price index. This is the inflation number the Federal Reserve weighs most heavily in its decisions — more so than CPI, because PCE adjusts for changes in consumer behavior and covers a broader basket of spending.

April's headline PCE ran at 3.8% year-over-year — above the 3.5% March reading, driven by energy. Core PCE — which excludes food and energy — ran at 3.3% in April, up slightly from March's 3.2%. The core number is the one that tells the Fed the most about underlying price dynamics, because energy swings are often temporary.

May is the first month in which the Iran peace deal's effect on oil prices begins to appear in the data. Brent crude averaged roughly $91 in April versus approximately $86 in May — a modest improvement, but directionally meaningful. If headline PCE eases from 3.8% toward 3.5%–3.6% while core holds steady near 3.2%–3.3%, that is the best outcome for bond markets and for the rate path: it suggests the inflation surge of the past four months was substantially energy-driven and is now beginning to reverse.

A soft print below 3.4% could sharply reprice the rate-hike probability currently baked into December futures. A hot print at or above 3.8% would validate the most hawkish interpretation of the Fed's current stance and put renewed pressure on bond prices. The Q1 GDP final estimate also releases today alongside PCE; the advance estimate showed 2.0% annualized growth, and revisions are unlikely to be dramatic.

For retirees, this is the most consequential data point in weeks. Short-term Treasury yields and money market rates stay elevated as long as the Fed sees inflation above target. Today's PCE print — more than any single day's stock movement — will shape the income side of retirement portfolios through the summer.

Oil below $74, gold still under pressure. A secondary set of market signals: oil fell to a four-month low overnight as vessels continued transiting the Strait of Hormuz and the supply recovery accelerated. WTI traded near $73–$74 at Asia's close. Gold is trading below $4,100, weighed down by the strong dollar — the U.S. dollar index has climbed to a two-month high on rate-hike expectations. Central banks continued buying gold at a record quarterly pace in Q1 2026, providing structural support even as short-term price pressure from rates remains.

❓ Today’s Question

"Micron's stock is up 325% this year. If I hold an S&P 500 index fund, how much of that gain did I actually capture?"

Short answer: Micron is the third-best-performing S&P 500 stock in 2026. In a cap-weighted S&P 500 index — where larger companies get more space — Micron's weight is determined by its market value relative to the other 499 companies. At roughly a $1 trillion market cap, it represents about 1–1.5% of the index.

So a 325% gain in Micron contributed approximately 3–4 percentage points to your S&P 500 fund's return this year — meaningful, but much smaller than the headline gain suggests. The concrete step: look at your fund's top-10 holdings list and find Micron's percentage weight; that number, multiplied by 3.25, gives you a rough sense of how much the stock's YTD gain added to your fund.

Two things happened in the past 18 hours that, taken together, are about as clear a signal as markets provide. Micron's customers have committed to $100 billion in minimum memory purchases. That is not a bet on hype — that is a contractual obligation. And this morning's PCE will tell us whether the inflation spike of the past several months is beginning to release its grip. Neither number resolves every question. But after a week of alarming headlines and 10%-plus single-day declines, it is worth noting that the underlying data continues to tell a different — and more measured — story. That is, in my experience, almost always worth more attention than the noise. 🔔

Regards,
David Ellison