The robust performance of memory chip stocks this year has become a pivotal force supporting the rise of the S&P 500 index. However, as the momentum for upward revisions to earnings expectations wanes, this driving force is beginning to face a test.

According to calculations by Bloomberg strategist Simon White, over the past six months, Micron has contributed approximately 1.4 percentage points to the S&P 500's cumulative 8.3% gain, accounting for nearly one-sixth of the total. When combined with SanDisk and Western Digital, these three memory chip companies collectively contributed nearly a quarter of the index's returns.

This indicates that a significant portion of the S&P 500's gains this year have been concentrated in a handful of memory chip stocks. As the scope for analysts to further raise earnings expectations narrows, the ability of these companies' stock prices to maintain their strength will increasingly depend on the actual delivery of results, rather than on valuation expansion.

Transition from Expectations to Performance: The Shift in Memory Chip Rally Logic

In early April this year, the status of the memory chip sector in the market underwent a dramatic shift. Previously, Nvidia, Apple, and Alphabet had long dominated the list of top contributors to S&P 500 returns, while the impact of memory chip companies on the index was almost negligible.

This pattern reversed in April. The upward revisions to memory chip earnings expectations not only catalyzed the sector's rally but also triggered a market repricing of the AI supply chain's beneficiary order. After distinguishing the value between cloud providers and hardware manufacturers, capital further tilted towards memory chips, allowing them to outperform computing chips for a period.

However, the core logic that drove the significant rally in memory chip stocks—the continuous upward revision of earnings expectations—is gradually losing momentum. Bloomberg data shows that the analyst upgrade/downgrade ratio for the next year's earnings forecasts of S&P 500 constituents has fallen back to the equilibrium point of 1, and the pace of upgrades for the next two and three years has also slowed simultaneously.

This means that the expectation-driven tailwind that previously supported the valuation expansion of memory chips is gradually fading. To maintain their current valuations and their outsized contribution to the index in the future, these companies will need to rely on actual performance to meet market expectations, rather than continuing to depend on upward revisions to earnings forecasts. Simultaneously, the higher the market expectations, the greater the potential downside pressure on stock prices if results fall short.

Can Memory Chips Hold Up Alone? The S&P 500 Faces a Major Earnings Test in the Second Half

The strong performance of memory chips reflects a deeper structural rotation within the AI investment theme. After nearly two years of semiconductor sector leadership, market judgments about the ultimate winners in the AI value chain are becoming increasingly divergent.

Bloomberg analysis points out that the software sector has recently begun to show relative strength. If technical patterns, corporate buyback intensity, and relative momentum indicators continue to improve, capital could further flow into the software domain. Meanwhile, memory chip stocks have recently experienced a phase of correction. While this has not diminished their substantial contribution to the index's gains this year, it serves as a reminder that the current index structure, which is highly dependent on a few individual stocks for its drive, possesses inherent fragility.

Looking ahead to the second half of the year, the trajectory of the S&P 500 will largely depend on whether memory chip companies can sustain their current valuations with consistently delivered earnings. Should performance validation fall short of expectations, this year's most significant upward force could also become a major source of volatility.