A Trifecta of Rising AI Demand: 8 Key Items Shaping the Stock Market Wednesday
Plus, we’re looking through the July CPI report and other headlines moving stocks this morning.
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These are the early headlines and other items poised to influence the market at the start of the trading day. As we share this collection of market drivers, U.S. equity futures point to a positive start to the trading day.
1. President Donald Trump claimed the US had “total control over the Hormuz Strait,” as Washington and Tehran hardened their positions in deadlocked negotiations over the critical waterway. “We own it,” Trump told reporters at Joint Base Andrews outside Washington late Tuesday, an assertion Iran has dispelled via intermittent attacks on ships transiting the passage. “At some point, maybe they’ll do something, and then they get blown away.” (Bloomberg)
The tally of vessels tracked in the Strait of Hormuz fell to a one-week low of eight on Tuesday, shipping data showed, as owners avoided the key waterway amid continued hostilities in the Middle East. The United States and Yemen’s Iran-aligned Houthis reported separate attacks as prospects appeared to dim for an end to the Iran war, with Tehran saying the strait would stay closed unless Washington accepted its conditions. (Reuters)
In reading the above, the indication we walk away with is the standstill between the U.S. and Iran is poised to be a sustained one. That is, at least until one side or the other blinks at the back channel negotiation table, or opts for a renewed use of force. From a market persecutive this means treading in waters colored by uncertainty, and the growing risk that recent improvements in inflation data will be short-lived. While we will continue to hope for near-term peaceful solution, we will stick with our discipline of following the data, adjusting the Portfolio as needed.
2. The Bureau of Labor Statistics will publish the July consumer price index report at 8:30 a.m. ET. Inflation slipped to 3.5% in June, the lowest rate since March and cooler than the expected 3.8%. The consensus forecast for July is a modest cooling down to 3.4%… A key comparison to watch is whether inflation outpaced wage growth for the fourth straight month. Wage growth slowed to 3.2% over the year in July, the lowest increase since 2021. (Business Insider)
The above figures are for headline CPI in July, with the ones for the core figure expected to inch lower to 2.5% from 2.6% in June. Earlier this week, we shared our view that because of the extending tensions between the U.S. and Iran, which has fueled a rebound in oil and gas prices, the Portfolio will be more focused on what the upcoming Flash August PMI has to say about inflation pressures. We understand Fed followers may respond to Wednesday’s CPI data, but we’ll heed Fed Chair Warsh’s advice to follow the data and do our own thinking. Same goes for Thursday’s July PPI data.
3. Neocloud CoreWeave reported solid second-quarter earnings results on Tuesday afternoon. Its shares were up 14% in after-hours trading, after rising 2.4% in regular hours. CoreWeave’s rapid sales growth is fueled by a growing backlog, now up to $130 billion from $99 billion at the end of March. It’s mostly composed of large AI cloud contracts from Microsoft, Meta Platforms, OpenAI and others. It’s speedrunning its transformation into a “hyperscaler” like Amazon Web Services, Microsoft Azure, and Google Cloud. (Barron’s)
…Near-term capacity is effectively sold out, enabling CoreWeave to strike compute agreements on increasingly favorable terms, CEO Michael Intrator said. (Reuters)
4. Super Micro Computer stock was surging in Wednesday’s premarket after the server maker’s fiscal fourth-quarter earnings smashed Wall Street estimates on accelerating artificial-intelligence demand… That demand isn’t expected to slow down soon. Super Micro expects first-quarter revenue to be between $14.5 billion and $15.5 billion, which would be a 189% to 209% increase from the prior year’s $5.02 billion. That’s also ahead of analyst estimates for revenue of $11.8 billion. Fiscal 2027 revenue is expected to be between $65 billion to $72 billion, compared with Wall Street estimates of $53 billion. (Barron’s)
5. Lumentum Holdings blew past earnings expectations after the closing bell on Tuesday, continuing the optical-networking company’s blazing hot run. The strong results provide further evidence that optical technologies, which connect infrastructure within and between data centers, have become a crucial part of the artificial-intelligence boom. (Barron’s)
6. Hon Hai Precision Industry Co. reported a better-than-expected increase in quarterly profit, signaling robust global demand for AI hardware…“The unprecedented investments in global cloud infrastructure will become the most critical growth driver for Hon Hai over the next few years,” rotating Chief Executive Officer Michael Chiang told analysts… Chiang said that the company is on track to start mass production of Nvidia’s highly-anticipated, next-generation Vera Rubin platform in the current quarter and start shipping in the fourth quarter. (Bloomberg)
Normally we utilize the ol’ Forbes magazine Fact and Comment style with each of the items we’ve flagged, but today we are taking a more simple approach and bundling our comments for items 3 through 6. Reason being, when we take stock of quarterly results and updated guidance from CoreWeave (CRWV), Super Micro Computer (SMCI), Lumentum (LITE) and Foxconn (FXCOF), they all point to the same things: rising AI adoption that is driving robust demand for corresponding infrastructure, including servers, chips, networking, power and construction activity.
In other words, a very strong shot in the arm for many of the Portfolio’s positions.
After Wednesday market close we will hear from Cerebras (CBRS) and Cisco (CSCO). All indications are that they should deliver similar results to what those four companies said above. However, rather than rely on what they might say, we will still put their results and comments through their paces, tying them back to the Portfolio’s positions, our price targets and ratings.
7. Economic data today per TipRanks: MBA Mortgage Applications Index (Weekly), Consumer Price Index (July), EIA Crude Oil Inventories (Weekly).
8. Companies reporting today per TipRanks: Open: Brinker (EAT), Madison Square Garden Entertainment (MSGE). Close: Cerebras Systems (CBRS), Cisco (CSCO), Coherent (COHR), Jack in the Box (JACK), StubHub (STUB)
