Written by: Tide Research

Author: Rita

Tide Research Overview

J.P. Morgan expert Joshua Meyers released a report on June 21, summarizing the buy-side sentiment survey before Micron's quarterly report, hardware company pre-season research feedback, updates on AI capital expenditure forecasts, and the dynamics of several key companies. The core message of the report: The storage sector where Micron operates remains the most consensus-driven bullish direction in the AI sector, but discussions regarding the sustainability of high gross margins and valuation methods are emerging. In the hardware supply chain, demand for AI-related servers, networks, and storage remains strong, but divergence among individual stocks is apparent. This report is suitable for investors focusing on the U.S. hardware and semiconductor sectors.

Three Key Conclusions

① Buy-side sentiment before Micron’s quarterly report remains high, but two issues are fermenting.

Meyers points out that storage is one of the most consensus-driven bullish directions in both the tech sector and the overall market. AI demand continues to improve, and there has even been an unexpected increase in demand for intelligent CPU agents, with average selling prices (ASP) rising with each industry survey. Demand has indeed suffered to some degree, but the supply side's response has remained relatively restrained. The market generally expects Micron to announce more long-term agreements (SCA) in this quarterly report, with about 75% of surveyed buyers believing there will be new contracts. The market's focus is on: Micron's gross margin has exceeded 80% and sparked discussions about how the company views the potential for AI applications to further drive ASP, as well as how much detail can be disclosed regarding the specific terms of long-term agreements.

② Hardware supply chain pre-season research: AI-related demand is strong, with significant stock divergence.

Meyers compiled feedback from pre-season communications with hardware and network equipment companies. Celestica (CLS) has a better outlook on profit margins and is more confident regarding AI network projects. Western Digital and Seagate benefit from continued price improvements, and in a constrained supply environment, they do not need to cede prices during generational product transitions. Fabrinet's (FN) AI optical module business growth has become more predictable, with Amazon-related products beginning to contribute income this quarter and gradually scaling up. Teradyne's (TER) revenue is expected to fall sequentially in the second half of the year, but Google is expected to become its new VIP compute customer by the end of the year, providing an important increment for the next fiscal year.

③ AI capital expenditure forecasts adjusted upwards again, with the WFE market growth expected at 29% in 2027.

J.P. Morgan's global semiconductor team raised the 2026 wafer fabrication equipment (WFE) market growth rate from 21% to 28% (corresponding to $155 billion), and for 2027, from 18% to 29% (corresponding to $200 billion). DRAM, TSMC, Intel, and Samsung foundry are the main sources of additional growth. The financing model for AI infrastructure is also evolving, with the proportion of debt financing at the project level rising to over 85%. Considering that the market value after project completion is far higher than construction costs, the loan-to-value ratio (LTV) is only about 60%, and the constraints from the financing side on AI capital expenditure expansion are weakening.

Celestica's Improved Profit Margins Behind Supply Chain Signals

In the pre-season communication of the hardware supply chain, Celestica's (CLS) feedback is worth highlighting.

Meyers noted that Celestica previously expressed concerns about the pricing of Tomahawk (Broadcom switch chips), but this time its attitude has noticeably improved. The company is more confident in passing on costs through price increases and is striving for more rack-based AI network projects, which have higher profit margins. The market expects its FY26 operating profit margin to continue its expansion trend, potentially by 10 to 20 basis points. The outlook for FY27 is even more optimistic, with stable profit margins combined with operational leverage releases potentially leading to more positive guidance in the next earnings report.

In terms of AI chip supply, Celestica is working with both Broadcom and MediaTek, and its confidence in the supply chain is significantly stronger than that of Arista Networks, with large-scale customers receiving a higher priority for supply. This signal suggests that the demand landscape for AI network equipment is still concentrating on leading suppliers, and supply chain distribution capability is becoming a competitive barrier.

Short-term focus on performance verification, long-term outlook on valuation anchors

Micron's quarterly report is currently the most direct catalyst. The market consensus has essentially priced in a strong quarter, and the real variable lies in the degree of detail disclosed about the long-term agreements. If the coverage ratio of SCAs allows the market to see the visibility of future revenue, Micron's valuation logic may be further reshaped.

Another key variable in the hardware sector is the rhythm of demand. Distributors like CDW report that a significant portion of the current strong demand for servers and network equipment comes from customers ordering in advance due to concerns about further tariff price hikes. How long this front-loaded demand can continue is the biggest uncertainty for the hardware sector in the second half of the year.

Three signals to track:

The level of detail in the disclosure of SCAs in Micron's quarterly report and the outlook for gross margins. Whether Arista Networks can raise its full-year guidance in the next earnings report. Whether Fabrinet's Amazon optical module revenue can climb to $250 million per quarter as expected within a year.

Disclaimer

This article is a summary and interpretation of third-party brokerage research reports by Tide Research. The ratings, target prices, earnings forecasts, and related judgments quoted in the text are the opinions of the brokerage's analysts and only represent the position of their respective institutions, not the views of Tide Research, nor do they constitute any investment advice.

Please pay attention to three points while reading: 1. Target prices are analysts' expectations for the next approximately 12 months, they are predictions rather than promises, and will be adjusted repeatedly with performance and market conditions. 2. Sell-side research reports are inherently biased towards bullish views, and some covered companies have investment banking relationships with the brokerage. 3. The value of research reports lies in the main logic and its underlying assumptions, rather than a specific target price. Focus on logic, not just prices.

The market has risks, and decisions should be made independently. This article should not be used as a basis for buying or selling any securities.

Data source: J.P. Morgan Research Report (Joshua Meyers et al., June 21, 2026) · Company publicly disclosed information

Tide Research · TideResearch · June 2026