Can the AI Infrastructure Trade Keep Up the Momentum?
The the odds of no rate hike in 2026 have jumped to 28% from 11% a month ago.
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Very early action is flat on Thursday morning with oil down, bonds higher, and interest rates lower. The July producer price index report comes at 8:30 a.m. ET following Wednesday’s inline consumer price index report. The CPI report wasn’t at all surprising and that was good enough.
The PPI report this morning matters more than usual, because some of its underlying data impacts the personal consumption expenditures price index (PCE), which is the inflation measure the Fed actually watches. PCE will be reported on Aug. 26.
The Rate Picture Has Shifted
Traders now assign a 28.1% probability to the Fed holding rates steady through the end of the year. A month ago the odds were around 11%. A hike later this year is still the most likely outcome, but the softening of the odds is helping the market mood. The lower-than-expected jobs news and Wednesday’s CPI have given traders reason to hope that the Fed will not rush to hike rates. Whether this hope for a more dovish Fed gains traction will depend in large part on oil, which went back to $90 last week before easing again this morning.
The Infrastructure Trade Is the Story
The big market story on Wednesday was a surge in the data center names, with CoreWeave (CRWV) and Nebius (NBIS), both delivering good reports. That combines with strength in the chips to give the AI group a boost. However the Magnificent Seven tech names struggled again with a loss of 1%. Strong pricing power for data centers and semiconductors is good for those businesses, but not so great for hyperscalers that have to pay the price.
The question for traders is whether the infrastructure trade can gain traction. These are companies that are actually building and operating the necessary AI capacity, and they keep posting impressive revenue that supports the story. The buyers of that capacity are the ones getting punished for spending, while the suppliers who can show the money flowing in are getting paid.
Can AI infrastructure be durable leadership from this point? This is not a new story and there are bears taking the other side. Famed “The Big Short” investor Michael Burry disclosed Wednesday that he added to short positions in Nebius, Micron (MU), and Oracle (ORCL) on the same day those stocks surged, calling Nebius what the top of a boom looks like.
His argument is not about the revenue, which is growing fast. It is that these companies are financing enormous capacity against demand that has not been proven yet. He points out that Nebius extended its server depreciation schedule from four to five years while the company itself assumes those deals decay by roughly half each year. Stretching depreciation makes current earnings look better and defers the true cost.
Nebius raised its 2026 capital expenditure guidance to a range of $20 billion to $25 billion and its long-term debt more than doubled to $8.4 billion. Burry may be early, as he proven often, but the risk that Wednesday was another two-day rotation is high and there are already some downside reversals on Thursday morning.
Still Concerned About the Calendar
I remain concerned that the end of earnings season, the lack of catalysts, and negative seasonality are going to start having a more significant impact on the market. Volume is already slowing substantially and trading is dull. What is keeping things interesting is the small cap outperformance and the speculative action in the AI infrastructure names, but there are signs of narrowing in the last few sessions.
Game Plan
My approach right now is a deliberate choice to be highly selective with any new buying. I have raised cash and I am working to protect gains and keep accounts close to their highs. I am looking for reasons to not take new buys.
I am not bearish, but I had a good run and I’m protecting it. I am trying to navigate the normal ebb and flow of a market and it feels like we are close to a period of rest and reset. That is not a prediction of a decline. It is an expectation that the pace slows and the easy trades get harder.
If I see something I like I will still buy it. But my shopping list from second quarter earnings is going to require patience while those charts develop, and there is no reward for forcing entries in a market that is running out of things to trade on.
At the time of publication, DePorre had no position in any security mentioned.
