Cooler July inflation gave tech stocks room to rally, but Cisco’s post-earnings drop showed the AI trade still has a margin problem.
The July consumer price index rose 3.4% from a year earlier, while core CPI slipped to 2.5%, according to the Associated Press and Barron’s coverage of the August 12 report. That’s still above the Fed’s 2% target. It was enough anyway. Traders had been bracing for a hotter print, and when it didn’t arrive, the S&P 500 rose 0.3% to 7,748.50 and the Nasdaq Composite gained 0.5% to 26,588.49, according to AP market data. The S&P did not close at a new record, with its earlier record sitting at 7,757.64, but investors got what they wanted most: one less reason for the Fed to sound tougher in September.
The money moved fast. CoreWeave jumped nearly 19% after quarterly revenue more than doubled to $2.58 billion, and Investopedia reported that the AI cloud company now expects full-year revenue of $12.4 billion to $13.2 billion. Super Micro Computer also rallied hard after its own results, while Nebius soared after another strong AI infrastructure print, as Business Insider noted. You can see the market’s instinct here. If a company sells compute, servers, networking gear, power-hungry boxes, you name it, investors still want exposure. That is real demand.
Cisco made the rally harder to trust
Cisco then gave investors the cleaner test. The company reported fiscal fourth-quarter results on August 12. The headline numbers were strong. The Wall Street Journal reported that revenue rose 18% to $17.25 billion, adjusted earnings hit $1.22 a share, and AI infrastructure orders reached $4 billion in the quarter. For the full fiscal year, those AI orders came to $9.3 billion, above Cisco’s earlier $9 billion target. Cisco also guided for fiscal 2027 revenue of $72.2 billion to $73.4 billion.
The stock still fell. Barron’s reported that Cisco shares dropped about 4% in after-hours trading after the release, even though the company’s forecast topped Wall Street expectations. Demand was not the issue. Gross margin was. Cisco’s adjusted gross margin fell to 66.3% from 68.4% a year earlier, and investors did not need much help drawing the conclusion: AI hardware orders can be huge and still come with heavier costs than software investors like to imagine.
That is the catch. The AI buildout is not one trade with one set of economics. CoreWeave can rally because customers are still scrambling for capacity, and Cisco can fall because the equipment needed to feed that same boom carries margin pressure. Both things can be true in the same week. Frankly, this is a better read on the market than another clean record close would have been. Investors are no longer rewarding the words AI infrastructure by themselves. They are starting to ask what the order book costs to fill.
The Fed gave investors one answer
The inflation report helped because rates sit under the whole growth-stock story. Barron’s cited CME FedWatch pricing showing traders put the chance of a September hold at about 60% after the CPI release, up from roughly 52% a day earlier. That is a useful shift. Lower expected rates make future earnings look better today, and tech stocks are built around future earnings. Still, one CPI print is not a full clearance. The next producer price data, the next payrolls report, and the next Fed message can all move the same trade again.
If you’re buying the AI rally, don’t treat every order equally. A $9.3 billion AI order total at Cisco is impressive, but the margin line tells you how much work sits behind it. CoreWeave’s revenue surge says demand is still running hot. Cisco’s pullback says the bill matters. The next real test comes when investors stop asking whether AI infrastructure is growing and start asking which companies can turn that growth into durable profit.
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