Written by: Trend Research

The July CPI data fully met expectations, and the Fed's interest rate hike forecasts were dampened, resulting in mixed performance of the three major U.S. stock indices. The S&P 500 rose by 0.26% to 7748.5 points, nearing its historical peak; the Nasdaq rose by 0.54% to 26588.49 points; the Dow Jones slightly fell by 0.04% to 53770.27 points. The VIX reported at 14.94, remaining basically unchanged. The year-on-year growth rate of CPI narrowed to 3.4%, while core CPI slowed to a year-on-year increase of 2.5%, with the market maintaining a roughly 45% bet on a rate hike in September. However, the real highlight was not in the indices, but within the AI sector. Optical communication, AI cloud services, and storage chips all saw significant increases, with Coherent soaring, Nebius skyrocketing by 34%, and SK Hynix rising over 9%. However, after-hours earnings season presented another scene, with Coherent's better-than-expected results initially leading to an 8% drop, Cerebras's hardware revenue unexpectedly declining resulting in a more than 17% drop, and Cisco's total AI orders reaching $4 billion, initially rising 8% but then falling over 6%. The AI sector is undergoing a brutal "performance verification".

CPI meets expectations, probability of September rate hike maintains at 45%

The U.S. July CPI rose 3.4% year-on-year and 0.1% month-on-month, with core CPI rising 2.5% year-on-year and 0.2% month-on-month, all four figures meeting market expectations. This marks the second consecutive month of moderate CPI, with inflationary pressure not worsening further, but no significant improvement is noted.

After the data was released, traders maintained a 45% bet on the Fed's September rate hike. The dollar index initially fell then rose, gaining 0.22% on the day. The yen fell to 159.48, approaching the critical psychological level of 160. The yield on 10-year U.S. Treasury bonds reached the highest since the 2007 financial crisis. The yield on the 10-year Treasury fell by 1.57 basis points to 4.6729%, while the 2-year yield rose by 0.53 basis points to 4.2267%.

The Philadelphia Semiconductor Index rose by 0.53%, outperforming other major indices.

AI sector surges across the board, capital concentrates after CPI

After the CPI data was released, funds concentrated in the AI sector, with AI cloud services and storage outperforming significantly.

AI cloud services led the gains. Nebius reported second-quarter revenue growth of 454%, with AI cloud sales rising by 514%, and its stock price surged by 34%. CoreWeave rose by over 19%. The gains of these two companies indicate that the market demand for AI computing rentals is still experiencing explosive growth, and the financial data supports their valuations.

Optical communication continues its strong performance. Lumentum rose by over 13%, and Coherent saw significant gains. The optical communication sector has accumulated significant rises in the past few weeks, with funds continuing to build positions after the CPI was released, indicating market confidence in the sustainability of demand for optical communication.

Storage chips also strengthened simultaneously. SK Hynix rose by over 9%, while Seagate rose by over 7%. South Korean media reported that Samsung and SK Hynix are planning an "epic" dividend repurchase, totaling possibly over $140 billion. If this plan comes to fruition, it will directly boost the valuation of the storage sector.

AI chip company Cerebras experienced a substantial intraday increase. However, this increase was completely erased after the earnings report was released.

The harsh reality of earnings season: exceeding expectations is no longer enough

The after-hours earnings reports from Coherent, Cerebras, and Cisco turned the daytime gains of the optical communication and AI chip sectors around.

Coherent exceeded expectations, yet fell over 8% after hours. Coherent's fourth-quarter revenue was $2.05 billion, a year-on-year increase of 34%, surpassing the market expectation of $1.99 billion; adjusted earnings per share were $1.74, a 74% year-on-year increase, exceeding the expected $1.62. Both the performance and guidance exceeded expectations, yet the stock fell over 8% after hours. The market's requirements for optical communication have evolved from "growth" to "sustained exceeding of expectations".

Cerebras’s hardware revenue unexpectedly declined, resulting in a more than 17% drop after hours. Cerebras's second-quarter revenue fell short of expectations, with an unexpected decline in hardware sales, leading to an after-hours drop exceeding 18%. The over 11% intraday gain was completely erased after hours. Not all players in AI chips can share the cake, and the volatility of hardware demand is being repriced by the market.

Cisco’s AI orders surged, but after hours it initially rose 8% then fell over 6%. Cisco's fourth-quarter revenue reached a record $17.3 billion, with total AI orders amounting to $4 billion. After the earnings report was released, Cisco, which had risen nearly 2.9%, initially gained close to 8% after hours, but then turned to fall over 6%. The AI trades are crowded, valuations are high, with a price-to-earnings ratio nearing 30 times, while the S&P 500 is at 22 times, and investors are becoming increasingly stringent on the sustainability of orders.

Gold continues to rise, Bitcoin fluctuates and rebounds

Gold prices rose for the third consecutive trading day. The spot gold price increased by over 1%, reported at $4412.40 per ounce, remaining above $4400. Spot silver rose and then fell, with a daily increase of 1.02%, reported at $65.322 per ounce. With moderate inflation and cooled interest rate hike expectations, gold continues to attract funds as a hedging tool.

Bitcoin rebounded from around $63200, regaining the $64250 level. Ethereum opened at $1894. Digital assets experienced a round of leveraged position liquidation before the CPI data was released, with a total reduction of about $174 million in open long and short positions, followed by a rebound after the data was released.

WTI crude oil closed up 1.3% at $83.20, while Brent crude oil closed up 1.36% at $88.91. U.S.-Iran negotiations remain deadlocked, and oil prices continue to rise.

Today's focus: digesting earnings reports and retail data

The core task of the market on Thursday is to digest the massive earnings reports released after hours.

Whether Coherent and Cerebras can stabilize their after-hours declines during Thursday's official trading session will determine the sentiment in the optical communication and AI chip sectors. Coherent's performance itself is not poor; the market is being picky about "the degree of exceeding expectations not being large enough"; Cerebras, on the other hand, is facing substantial issues with hardware demand, and the two are different in nature.

Cisco's performance is also worth watching. The surge in AI orders is a fact, but the turn from rise to fall in after-hours indicates that market tolerance for valuations is declining. If Cisco continues to weaken in Thursday's official trading, it may drag down the entire enterprise networking equipment sector.

The retail sales data is also a macro variable on Thursday. If consumer data is strong, market confidence in a "soft landing" will strengthen; if weak, concerns about cooling employment will resurface.