* Micron's earnings seen as a test of semiconductor demand

and AI spending durability

* Stocks remain near record highs, supported by AI momentum

and Iran war relief

* Big Tech is still spending, set to exceed $700 billion

this year

By Laura Matthews

NEW YORK, June 19 (Reuters) - Investors are seeking signs

that the U.S. stock market rally fueled by artificial

intelligence has more life left in it, and the upcoming Micron

Technology ( MU ) earnings will check the pulse of chip demand

to see if it is still accelerating.

Despite a sharp mid-week selloff, major U.S. stock indexes are

hovering near all-time highs, supported by robust corporate

earnings driven by an AI investment boom and relief from the

Iran war.

Micron's shares are up 298% this year, and the memory chip

maker's quarterly report on Wednesday, June 24, will help

investors gauge whether the surge in spending on data centers

and the resulting profits generated across the semiconductor

sector can continue to surprise to the upside.

"There's been a lot of momentum here recently," said Andy

Pratt, director of investment strategy at Burney Company. "This

AI trend is something that's continued, and honestly, what we

see with this revenue surprise signal that we monitor is there's

still a lot of juice."

Apple has agreed to partner with Intel ( INTC ) to design and manufacture

chips in the U.S., which could significantly boost the

chipmaker's turnaround efforts. That helped to lift the S&P 500

nearly 1% so far this week, on pace for a second weekly

gain.

Meanwhile, the Philadelphia SE Semiconductor index hit a

record high and was last up 7% for the week.

LOOKING FOR REINFORCEMENTS

The stakes are high. Micron's earnings come at a time when

valuations are elevated and investors are questioning whether

the rally is overextended. Any indication of underlying demand

and continued AI-related spending strength could give investors

confidence to keep stoking the rally.

Micron's earnings are "setting up as a classic positive feedback

loop," said Steve Kolano, chief investment officer at Integrated

Partners. "That really seems to be kind of the only game in

town. ... If you look at the book to bill of semiconductor

companies right now and the backlog, the demand is just through

the roof in relation to chip capacity."

Big Tech has signaled that AI spending is not slowing, set

to rise past $700 billion this year from $400 billion in 2025.

MACRO BACKDROP STILL LOOMS

Although the AI narrative has dominated markets, underlying

macroeconomic concerns remain. The Federal Reserve's preferred

inflation measure is due next week. So, too, is a final reading

on first-quarter GDP. Both reports will provide checks on the

health of the U.S. consumer and economic growth.

Second-quarter earnings growth for the S&P 500 is estimated at

22.9%, down from 29.3% in the first quarter, according to data

provided by Tajinder Dhillon, head of earnings research at LSEG.

Drew Matus, chief market strategist at MetLife Investment

Management, said strong equity markets have been one of the main

supports for consumers, and anything that challenges the AI

trade or the continued rise in stocks is being closely watched.

"It has not just been market effects but macroeconomic

effects at this point," he said. "We're definitely worried about

the wealth effect going away and what that might mean."

For now, the consensus is that the AI trade remains intact, with

little sign of slowing. Newly public SpaceX has reinforced that

momentum, and Nasdaq's inclusion of more AI and chip

infrastructure names like Astera Labs ( ALAB ) and CoreWeave will force

index funds to buy in.

"The way I would view this is," said Burney's Pratt, "you

could continue betting on these companies kind of until proven

otherwise."