Author: Trend Research
The July CPI data was fully in line with expectations, tamping down expectations for a Fed rate hike, with the three major U.S. stock indices posting mixed results. The S&P 500 rose 0.26% to 7748.5 points, approaching a record high; the Nasdaq gained 0.54% to 26588.49 points; the Dow Jones edged down 0.04% to 53770.27 points. The VIX closed at 14.94, essentially flat. Year-on-year CPI growth narrowed to 3.4%, while core CPI slowed to 2.5% year-on-year. Market bets on a September rate hike remained around 45%. However, the real focus of the market wasn't the indices, but the internal dynamics of the AI sector. The optical communications, AI cloud services, and memory chip sectors all surged, with Coherent posting a significant gain, Nebius soaring 34%, and SK Hynix rising over 9%. Yet, the post-market earnings season told a different story. Coherent beat earnings estimates but later fell 8% in after-hours trading. Cerebras saw an unexpected decline in hardware revenue, falling over 17% after hours. Cisco reported AI order commitments reaching $4 billion, initially rising 8% after hours before falling over 6%. The AI track is undergoing a brutal "earnings verification."
CPI Meets Expectations, September Rate Hike Probability Holds at 45%
U.S. July CPI grew 3.4% year-on-year and 0.1% month-on-month. Core CPI increased 2.5% year-on-year and 0.2% month-on-month. All four figures met market expectations. This marks the second consecutive month of moderate CPI readings, with inflation pressures not worsening further, but also not showing significant improvement.
Following the data release, traders maintained their 45% probability bet on a Fed rate hike in September. The U.S. Dollar Index first fell then rose, gaining 0.22% on the day. The Japanese yen weakened to 159.48, approaching the key psychological level of 160. The yield on the 10-year U.S. Treasury auction hit its highest since the 2007 financial crisis. The 10-year Treasury yield fell 1.57 basis points to 4.6729%, while the 2-year yield rose 0.53 basis points to 4.2267%.
The Philadelphia Semiconductor Index rose 0.53%, ranking among the top performers among major indices.
AI Sector Rallies Across the Board as Funds Flow In Post-CPI
After the CPI data was released, funds concentrated heavily into the AI sector. AI cloud services and memory were among the biggest gainers.
AI Cloud Services Lead the Gains. Nebius saw Q2 revenue grow 454% year-on-year, with AI cloud sales surging 514%, driving its stock price to soar 34%. CoreWeave rose over 19%. The gains in these two companies indicate that market demand for AI compute power rental remains in explosive growth, with earnings figures strong enough to support valuations.
Optical Communications Maintain Strength. Lumentum rose over 13%, and Coherent posted a significant gain. The optical communications sector had already accumulated substantial gains over the past few weeks. Continued buying after the CPI data suggests market confidence in the sustainability of demand for optical components.
Memory Chips Also Strengthen. SK Hynix gained over 9%, and Seagate rose over 7%. Korean media reported that Samsung and SK Hynix are considering "epic" dividend and buyback plans, potentially totaling over $140 billion. If realized, this would directly boost valuations for the memory sector.
AI Chip Company Cerebras Rose Significantly During the Day. However, these gains were completely erased following its post-market earnings report.
The Brutal Reality of Earnings Season: Beating Estimates Is No Longer Enough
The post-market earnings reports from Coherent, Cerebras, and Cisco turned the tables on the optical communications and AI chip sectors that had surged during the day.
Coherent Beats Estimates, Still Falls Over 8% After Hours. Coherent's fiscal Q4 revenue was $2.05 billion, up 34% year-on-year, surpassing market expectations of $1.99 billion. Adjusted EPS was $1.74, up 74% year-on-year, beating expectations of $1.62. Both performance and guidance exceeded expectations across the board, yet the stock fell over 8% after hours. Market expectations for optical communications have escalated from "growth" to "sustained above-expectation growth."
Cerebras Sees Unexpected Hardware Revenue Drop, Plummets Over 17% After Hours. Cerebras's Q2 revenue missed expectations, with hardware sales unexpectedly declining, causing the stock to plunge over 18% after hours. Cerebras's intraday gain of over 11% was completely wiped out. Not all players in the AI chip space are getting a slice of the pie, and the volatility in hardware demand is being repriced by the market.
Cisco Reports AI Order Surge, Rises 8% Then Falls Over 6% After Hours. Cisco's fiscal Q4 revenue hit a record $17.3 billion, with AI order commitments reaching $4 billion. After the report, Cisco, which had closed up nearly 2.9%, initially jumped nearly 8% after hours, then reversed to fall over 6%. The AI trade is crowded, valuations are high (Cisco's P/E is near 30x vs. 22x for the S&P 500), and investors are demanding increasingly strict proof of order sustainability.
Gold Extends Gains, Bitcoin Rebounds Amid Volatility
Gold rose for a third consecutive trading day. Spot gold gained over 1% to $4,412.40 per ounce, holding above $4,400. Spot silver pared gains after a surge, closing up 1.02% at $65.322 per ounce. With inflation moderate and rate hike expectations cooling, gold continues to attract funds as a hedge.
Bitcoin rebounded from around $63,200, reclaiming the $64,250 level. Ethereum opened at $1,894. Digital assets experienced a round of leveraged position liquidations ahead of the CPI data release, with total long-short positions reduced by approximately $174 million, before rebounding post-data.
WTI crude settled up 1.3% at $83.20 per barrel, and Brent crude rose 1.36% to settle at $88.91 per barrel. U.S.-Iran negotiations remain deadlocked, supporting higher oil prices.
Today's Focus: Digesting Earnings and Retail Data
The core task for Thursday's market is digesting the flood of post-market earnings.
Whether Coherent and Cerebras can stabilize their post-market losses during Thursday's regular trading session will set the tone for the optical communications and AI chip sectors. Coherent's performance wasn't poor itself; the market is nitpicking that the "beat wasn't strong enough." Cerebras, however, has a substantive issue with hardware demand. The nature of the two situations differs.
Cisco's movement is also worth watching. The surge in AI orders is a fact, but the post-market reversal suggests declining market tolerance for its valuation. If Cisco continues to weaken in Thursday's regular trading, it could drag down the entire enterprise networking equipment sector.
Retail sales data is also a key macroeconomic variable on Thursday. Strong consumer data would boost confidence in a "soft landing"; weakness could reignite concerns about a cooling labor market.
