Weekly Market Update: cherished memories?

The latest economic news and market highlights from the UK and abroad.

This week's headlines: 

• UK energy bills set to rise – household energy bills are due to rise by 13% from July as regulator Ofgem increases the energy price cap. Disruption in the Strait of Hormuz has impacted oil and gas prices sending wholesale costs soaring. While the cap has so far shielded consumers, this marks the first time the war in Iran will hit home energy bills. The typical household will now pay £221 more a year.
  
  
• A week of memories – South Korean and US memory chip manufacturers SK Hynix and Micron edged over $1tn in market value this week following demand for AI. They joined fellow memory chip manufacturer Samsung which crossed the same milestone earlier this month.
  
  
• A deal on the horizon? –  Reports on Thursday suggest that the US and Iran are close to a peace deal, pending approval from the leaders of both sides. The proposed agreement would allow a 60-day ceasefire, and importantly reopen the Strait of Hormuz. US Vice President JD Vance said though that it was too early to say when or if a deal would be finalised.
  
  
• Anthropic’s valuation jumps ahead of IPO talks – Anthropic’s valuation surged to $965bn following further private funding. Its new valuation puts it ahead of Open AI with both companies expected to list on the stock market later this year. 
  
  
• Samsung bonus deal approved – unions at Samsung approved a deal that would give 78,000 workers 12% of the company’s annual operating profit. This averted a strike that could have disrupted the global tech supply chain.

In the UK, we’re seeing further impact of the war on pockets at home. Energy caps set by Ofgem protect those on standard variable tariffs and are set every three months. For those on those tariffs, they’ll start seeing the impact of elevated energy prices for the first time. And even if a peace deal is struck in the short term, it’ll take a while for it to be reflected through the cap.

This week there have been hopes that something could happen in the short term. But nothing’s yet set in stone. And for all the positive signals, there have still been exchanges of fire between all countries involved during the current ceasefire. There were also threats from Trump to bomb Oman, an ally and mediator, if they jointly charged a toll for shipping through the Strait of Hormuz with Iran.

In tech we see AI continuing to drive markets.

This week saw SK Hynix and Micron hit the $1tn milestone. These companies are vital in the global tech economy, as the memory is needed to do all the things AI. Nvidia is a major buyer of memory, and the surge in demand has led to shortages of memory worldwide.

Meanwhile, Anthropic saw its valuation rise further, and with names such as OpenAI and SpaceX also pursuing stock market listings, investors are starting to consider what their eventual inclusion in public markets could mean for index composition and concentration risk.

The three big chip makers

Source: Reuters, Trendforce, The AI frenzy is driving a memory chip supply crisis | Reuters

Dynamic Random Access Memory (DRAM) memory is vital for AI processing power. If you think of the processors from Nvidia being the engine, the memory acts like the clutch – without it, the system simply doesn’t move.

There’s a memory shortage at the moment, with nearly all manufacture going towards High Bandwidth Memory (HBM) needed for AI. Consumer memory has soared in price as a result, which impacts the cost of everyday tech like laptops and phones.

90% of the industry sits within the control of just three companies. All of which now are worth over $1tn.

There’s a high barrier to entry, and they control the supply. So, investors are quite keenly interested in their performance, as they’re positioned as “pick and shovel” providers of the AI cycle. These companies have been key drivers of recent market momentum.

Samsung’s potential strike action last week highlighted the vulnerability in supply showing how vital these companies are, especially as Samsung decided to give into the unions’ demands which are normally unheard of.

With these high values, you’d think that the companies are now pretty expensive. On forward earnings, Micron is cheaper than the S&P 500, suggesting the rally has been driven more by earnings momentum than pure multiple expansion.

There’s been explosive growth, but is there still room for more? It’s still uncertain as to who the winners in AI will be and whether this can continue.

UK – The FTSE 100 shrank slightly but the FTSE 250 showed some growth. 10-year gilt yields neared April lows as inflation fears eased.

US – The S&P 500 and Nasdaq closed at new records on Thursday amid US-Iran deal hopes and a rally in tech.

Oil – Oil prices have fallen over the week, as ever since the start of the war, markets are poised over any potential peace deal.

Japan & Emerging Markets – While the index shows as slightly down, there have been big moves for tech companies featured within the index. Korea’s KOSPI index entered new highs on Friday morning driven by the tech rally.

Join our online event with global business futurist Kate Ancketill on 23 June at 11am. She’ll explore the AI-driven future of consumer experience and what it means for advice firms.

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