Samsung posts strong results, and chip stocks sell off anyway

Good morning. Chip stocks dragged Wall Street lower last night. The Dow slipped 131 points, or 0.3%, after touching a record intraday, and the Nasdaq fell 0.7%. The trigger was oddly enough good news from Samsung. Its second-quarter profit jumped on memory demand, yet investors sold.

The reason is what comes next. With DRAM supply expected to grow sharply through 2027, the worry is that today’s strong sales will give way to oversupply and falling prices. Big cloud companies’ capital spending has passed $700 billion, which also raises depreciation costs and could slow earnings growth. A few strategists call this the early stage of a bubble and say a pullback is unavoidable.

Tension flared again in the Middle East. Iran attacked three merchant ships in the Strait of Hormuz, and U.S. forces responded with a series of strong strikes. The Treasury also revoked a license allowing Iranian oil sales, and crude rose. That puts a dent in the recent oversupply mood.

Money looked beyond AI. The Russell 2000 is up 21% this year, its best start since 1991, and U.S. bank stocks gained 9.3% in June while the S&P 500 lost 1%.