Author: Deep Tide TechFlow

U.S. Stocks: A "perfect earnings report" stomps the entire market into the mud

Yesterday (February 12), U.S. stocks experienced one of the worst days this year.

The Dow Jones Industrial Average closed down 669 points, a decline of 1.34%, ending at 49,452 points, swallowing back the "achievement of surpassing 50,000 points" that was just established the previous week; the S&P 500 fell 1.57%, closing at 6,832 points; the Nasdaq dropped 2.03%, closing at 22,597 points — the worst single-day decline since April. The VIX fear index surged 16% in one day, and the whiteboard on the wall started writing "sell everything" again.

The culprit is Cisco.

This company delivered an earnings report that was "good" from any perspective: quarterly revenue of $15.3 billion, a 10% year-on-year increase, setting a historical record; earnings per share of $1.04, exceeding Wall Street's expectation of $1.02; product orders rose by 18%, with AI infrastructure orders particularly strong, and revenue from networking devices surged by 21%. Even CEO Chuck Robbins stated during the conference call that the company is in a favorable position as a "builder of trusted infrastructure in the AI era."

However, Cisco's stock price crashed 12.3% on the same day, marking the largest single-day decline since May 2022.

Why?

Because Cisco mentioned in its earnings report that rising memory chip prices have been eroding gross margins. The non-GAAP gross margin was 67.5%, while the market had expected it to be higher; service revenue declined by 1% year-on-year; and the FY2026 annual EPS guidance of $4.13 to $4.17 already factored in tariff impact costs, indicating that the shadow of trade frictions has not disappeared.

The market interpreted this earnings report as a signal: if even one of the most direct beneficiaries of the AI wave is seeing profits compressed by memory prices and tariffs, how wide truly is the moat of the AI narrative?

Panic quickly spread outward. Apple dropped 5% in a single day, marking its worst daily performance since April; Disney fell 5.31%; Meta, Amazon, Nvidia, and Microsoft collectively declined between 1% and 5%. Although AppLovin's quarterly report exceeded expectations, its stock continued to drop due to a 45% decline since the beginning of the year. The software stock ETF (IGV) fell 3.7% in one day, returning to last week's low.

The only ones going against the trend are the defensive sectors. Walmart rose by 3.8%, McDonald's by 2.7%. Just weeks ago, they were being dragged down by AI panic and consumer data; yesterday, they became a safe haven.

Two highlights worth noting before today’s market opening that may prevent the market from despairing entirely: Applied Materials released an earnings report after hours that exceeded expectations, causing its stock price to jump 12%; Rivian issued strong delivery guidance, leading to a 16% increase in its stock price. The buying interest in chip manufacturing equipment and electric vehicles indicates that the market has not entirely retreated but is only discerning.

Today's biggest variable: January CPI, to be released in the early hours tonight

This is the ultimate blow of the week.

At 21:30 Beijing time tonight (February 13), the U.S. Bureau of Labor Statistics will release the January CPI inflation data. This data was supposed to be released earlier but has been delayed due to a partial government shutdown.

The market consensus predicts: the year-on-year CPI rate will slightly drop from December's 2.7% to 2.5%, with a month-on-month increase of 0.3%. The core CPI year-on-year rate is also expected to decrease to 2.5%.

However, the current risk is asymmetrical—if the data is "unexpectedly low," the market will feel relieved: expectations for interest rate cuts will return, tech stocks will catch a breather, and gold and Bitcoin may rebound in the short term; but if the data is "unexpectedly high," stacking on top of the strong non-farm payroll data, the window for rate cuts will be pushed further away, U.S. Treasury yields will rise again, creating another nightmare for tech stocks.

The CME FedWatch data shows that the current market probability of not cutting rates in March is nearly 95%, and the probability of a 25 basis point rate cut in June is about 93%. If the CPI report surprises to the downside, these expectations will be reshuffled.

Gold and Silver: Once Again Falling Below 5,000, Waiting for CPI to Provide Answers

Yesterday (February 12), gold declined alongside the overall market risk sentiment—but the drop was much smaller than that of stocks. Spot gold closed around $4,980 to $5,000 per ounce, giving back nearly two days of gains; silver fell more than 8%, dropping to about $77 per ounce, once again approaching the low range after last week's plunge.

The relative resilience shown by gold in this round of declines is a detail worth noting: on days when U.S. stocks fell by 1.5% to 2%, gold only dipped by about 2.7%, and buying support quickly emerged below $5,000. This indicates that institutions with long-term positions in gold have not been scared away by this wave of technical panic.

The real test lies in tonight's CPI: if inflation data is mild, Treasury yields will retreat, and gold is likely to return above 5,000; if the CPI exceeds expectations, gold will still face short-term pressure. The People's Bank of China has continued to increase its gold holdings for 15 months, providing a bottoming effect, along with medium to long-term geopolitical risks (the U.S.-Iran nuclear talks have not yet reached a final settlement), forming structural support below.

Silver’s situation is more complex than that of gold. London silver inventories continue to decline, industrial demand (especially for solar panels) is structurally strong, but short-term ETF capital outflows and speculative positions have not fully recovered, leading to sustained volatility.

Crypto Market: Bitcoin Slips Toward 65,000, "Extreme Fear" Hasn't Disappeared

Currently, Bitcoin is around $65,000 to $66,700, continuing a slow downward trend over the past four days. Ethereum struggles to maintain support below $1,990, and XRP is around $1.40.

The sharp drop in tech stocks in the stock market has dealt a double blow to the crypto market: firstly, risk assets are falling together; secondly, the signal in Cisco's earnings report regarding "increased AI memory costs" subtly indicates a marginal slowdown in AI spending, which is exactly the narrative that crypto bulls originally used to support "increased on-chain activity driven by computing power."

The current key parameters in the market: the Fear and Greed Index remains in single digits (extreme fear); U.S. Bitcoin spot ETFs have seen a net outflow of over $1 billion since the beginning of the year; betting on Polymarket for Bitcoin touching below $65,000 this year has risen to 82%. Wolfe Research cites historical patterns indicating that Bitcoin's four-year cycle has an average peak-to-trough decline of 75%, if replicated, the theoretical bottom could fall in the range of about $31,000 to $35,000, though this is a tail risk; the market is currently more focused on whether it can hold above 60,000.

Tonight's CPI is the crucial juncture. If inflation unexpectedly cools, Bitcoin may experience a brief oversold rebound, targeting a range of about $70,000 to $74,000; if the CPI is higher than expected, then the psychological barrier of 60,000 will face its first real test.

In summary, Cisco turned an unexpected report card into a time bomb that blew the entire market apart, unintentionally puncturing a belief that was being cautiously maintained by the market: Can AI's profits continue to exceed its costs?

At 21:30 tonight, the other half of the answer will appear in the January CPI. The line between bear market and recovery lies on either side of this number.