Inflation Cooled. AI Took the Lead.

GOOD MORNING, July inflation came in exactly where markets needed it: soft enough to reduce pressure for a September Fed hike, but not soft enough to declare the problem solved. Stocks used the opening. CoreWeave jumped 19%, Nvidia and Micron rallied, and the S&P 500 moved closer to a record as investors paired easier rate expectations with another round of strong AI infrastructure demand. After the bell, Cisco added a useful caveat: AI orders are booming, but margins and expectations are getting harder to beat. The trade is still working. The economics are becoming more important.

MARKETS | TLDR

AI lifted the S&P 500 and Nasdaq: The S&P 500 rose 0.26% to 7,748.50 and the Nasdaq gained 0.54% to 26,588.49, while the Dow slipped 0.04% as CoreWeave and semiconductor stocks led gains.
July CPI reduced September hike pressure: Headline CPI rose 0.1% month over month and 3.4% year over year, while core inflation rose 0.2% on the month and 2.5% from a year earlier; traders moved toward a roughly 60% chance the Fed stays on hold in September.
Oil stayed near $89 despite severe Hormuz disruption: Brent settled at $88.98 a barrel and WTI at $83.27 as stalled U.S.-Iran talks supported prices, while weaker global demand forecasts and a surprise U.S. inventory build capped the move.

AI CAPEX

CoreWeave Raised Capex. The Stock Jumped 19%.

CoreWeave surged 19% Wednesday after reporting stronger-than-expected results and raising its annual capital-spending forecast. The AI cloud provider also disclosed a backlog of more than $100 billion, giving investors another concrete signal that demand for outsourced AI compute remains exceptionally strong. Other infrastructure names followed: IREN gained 7%, Applied Digital rose 3.4%, and chipmakers including Nvidia and Micron advanced.

The reaction matters because the market had spent much of June and July questioning whether AI capex was outrunning monetization. CoreWeave gave the opposite signal. Customers are still committing to large amounts of future compute, and the company is responding by spending more rather than pulling back. In this phase of the cycle, a higher capex forecast can be bullish if investors believe the capacity is already spoken for.

The caveat is financing. CoreWeave's model requires enormous upfront spending before revenue is realized, and its backlog stretches years into the future. That makes the company unusually sensitive to both execution and the cost of capital. Wednesday's softer CPI helped because it reduced near-term pressure on rates at exactly the moment CoreWeave asked investors to underwrite another round of infrastructure expansion.

RATE RELIEF

CPI Took September Off the Front Burner

Consumer prices rose just 0.1% in July after falling 0.4% in June, while annual inflation eased to 3.4% from 3.5%. Core CPI increased 0.2% on the month and 2.5% from a year earlier. Falling gasoline prices and softer lodging costs helped keep the headline number contained, reinforcing the case that June's energy shock has not yet turned into a broad inflation spiral.

Markets responded by reducing the odds of a September rate hike. That matters for growth stocks because the Fed does not need to cut rates for financial conditions to improve; simply removing an expected hike lowers the path investors use to discount future earnings. Wednesday's simultaneous rally in AI infrastructure names and decline in Treasury yields was a clean example of that mechanism.

The report was not a victory lap. Economists noted that some of the softness came from temporary hotel-price declines, while core goods inflation broadened and headline inflation remained well above the Fed's 2% target. Oil is also back near $90 as Hormuz remains severely disrupted. July CPI reduced urgency. It did not remove the risk that August energy costs put inflation back into the policy debate.

HEADLINES

Cisco's AI orders are booming, but investors wanted more: Cisco forecast fiscal 2027 revenue of $72.2 billion to $73.4 billion, well above consensus, and expects $7.5 billion of AI infrastructure revenue from hyperscalers; shares still fell more than 4% after hours as margins and lofty expectations overshadowed the beat.
Cisco booked $9.3 billion of hyperscaler AI orders: Fourth-quarter AI infrastructure orders reached $4 billion, taking fiscal 2026 orders to $9.3 billion and reinforcing the idea that networking is becoming a major second-order beneficiary of the GPU buildout.
Cerebras proves AI growth can still disappoint: Shares fell 16% after hours despite stronger cloud revenue and higher annual targets because adjusted gross margin fell to 40.6%, showing that investors are increasingly focused on the economics underneath AI growth.
Hormuz traffic falls to just eight vessels: Kpler counted only eight vessel transits Tuesday versus roughly 130 to 140 per day before the war, keeping the physical energy shock alive even as crude prices failed to break higher.
The U.S. budget deficit hits a July record: July's federal deficit reached $432 billion and the fiscal-year-to-date gap hit $1.8 trillion, a reminder that softer Fed expectations do not automatically solve the long-end Treasury supply problem.

UPCOMING

PPI inflation — August 13: Producer prices are the next test of whether July's CPI softness reflects a broader easing in inflation or a temporary break driven by gasoline and lodging.
Initial jobless claims — August 13: Labor-market data will help determine whether last week's weak payroll report represents genuine deterioration or a temporary distortion.
Retail sales — August 14: July spending will show whether consumers are still absorbing elevated prices and borrowing costs after inflation offered some relief.
University of Michigan sentiment — August 14: Inflation expectations will be especially important with oil near $90 and Hormuz shipping still severely disrupted.

DEEP INSIGTHS

July 2026 Consumer Price Index

Read the BLS release for the composition behind the benign headline. Gasoline fell again and shelter remained subdued, but core goods prices broadened and inflation is still materially above target — the details that explain why the Fed can wait without declaring victory.

Cisco FY2026 Q4 Results and AI Infrastructure Outlook

Cisco is a useful second-order read on the AI buildout. Its hyperscaler AI orders reached $9.3 billion for the year and fiscal 2027 revenue guidance beat expectations, but lower gross-margin guidance shows how a more hardware-intensive AI mix can drive revenue faster than profitability.