Nasdaq Notes: What I Watch in Earnings Season

This earnings season taught me one thing: pricing power over AI stocks has passed from launch events back to orders and cash flow.

A flashier launch no longer buys a rally automatically. Only companies that can show signed orders and margins you can actually calculate get to set their own price.

The day Alphabet released Gemini 4, the stock fell. Two years ago a flagship model launch was practically a guaranteed green candle; everyone rushed to tell stories and size the upside. Now, after the demo, the market is asking a different question: how much did this cost to train, when does it become revenue, and whose revenue?

Micron's Q4 revenue was $54.2 billion, up 379% year over year, with EPS of 33.42 and an 87% gross margin. In my three years at a brokerage I read plenty of memory-chip financials. The industry has always been deeply cyclical, a fight over capacity and price: margins spike at the top of the cycle and get smashed back down in the downturn. What does 87% mean? That no longer looks like selling a commodity. It looks like selling something scarce.

Gross margin is the first thing I look at in a report. Revenue can grow by pushing volume, cutting prices to win share, or stacking up acquisitions. Gross margin rises for basically one reason: buyers can't do without you.

What really made me sit up were the next two items: next-quarter guidance of $61.5 billion, above expectations, and $32 billion in supply commitments, plus management saying capacity will stay tight through 2028.

Guidance is a number management backs with its own credibility. Guide too high, miss next quarter, and the stock gets punished twice as hard, so guidance above expectations usually means the order book they can see is thick. Supply commitments are even harder: they're long-term supply agreements. When buyers are willing to lock in volume ahead of time, what they fear isn't paying too much; it's not getting supply at all. As for "tight capacity through 2028", in plain language: for the next two or three years, sellers set the price. That's what I mean by "orders". Not the addressable market on a roadshow slide, but customers who have already placed orders, or are lining up to.

Micron's stock ran to 1,100 and then pulled back. Some will say the good news was priced in, and that's one explanation. I'd rather see it this way: orders and cash flow taking back pricing power doesn't mean they only price upward. What they provide is an anchor. Near the anchor, when expectations are maxed out, people still take profits. The real problem of the launch-event era was the lack of an anchor: valuations floated as high as the story was big. Now at least there's something to calculate with.

Nike's Q1 FY2027 numbers would look ugly in any stock screener: Greater China down 26%. But a good chunk of that decline was self-inflicted. It deliberately tightened supply of hits like Dunk and Jordan. I call it a "self-destructive rebuild". Sell too many of a hit and it loses value; when it's everywhere, the brand premium is gone. Nike chose to trade short-term revenue for brand scarcity.

It has nothing to do with AI, but it answers a question no earnings season can avoid: what kind of bad numbers will the market actually pay for?

My view: bad numbers with a clear cause, ones that ultimately point to margins and cash flow, can be priced. If Nike's revenue decline buys fewer discounts and higher margins, it has simply moved money from this year into the next few, and the math works. Flip it around: an AI company with soaring revenue whose margins are eaten by compute costs and whose operating cash flow stays negative year after year has "good numbers" that don't hold up.

Micron is at the top of its cycle and Nike is deliberately finding a bottom. Opposite positions, same way of reading them: the number itself matters less than where it leads.

Here's roughly how I take apart a report now. Revenue growth is just the ticket in; right after, I ask whether the growth came from volume or from price. Gross margin answers that for you. Guidance matters more than the quarter's numbers, because the stock trades the future, and a number management stakes its credibility on says more than the assumptions in a sell-side model. Then I dig into anything binding: supply commitments, backlog, customer prepayments. That's the most honest evidence of demand. Saying you're bullish costs nothing; signing a contract costs money. Cash flow is the final check. Profit can be adjusted through accounting choices; whether cash actually came in is hard to fake.

For companies with falling revenue I run the same process and add one question: was the decline forced on them, or chosen? If chosen, did it buy better margins?

On September 30 the Nasdaq jumped 280 points, with all five big tech names up. On October 3 payrolls came in shockingly weak at just 29,000, and the Nasdaq hit a new high of 27,192 anyway. Weak jobs raise rate-cut expectations, funding costs fall, and growth-stock valuations get a floor. "Bad news is good news" is exactly the logic of this rate-cut trade.

But the rate-cut trade is the water level, and a rising tide lifts all boats. That's exactly why earnings season matters more: it's when you find out which boats have a hull and which are just being held up by the water.

Lately I write duetfolio (a portfolio tracker for US and Hong Kong stocks) during the day, and at night I switch to earnings reports, paging through to find which footnote the supply commitments and customer prepayments are hiding in.

This is just how I read things, not investment advice.