Market Overview for Trading Day

As the trading day kicks off, certain headlines and market factors are poised to make an impact. Early indications suggest that U.S. stock futures point toward a positive start. Given the timing of Thursday’s Producer Price Index (PPI) release for July, it might be wise to keep an eye on these futures as the market prepares to open.

1. U.S. Treasuries saw an uptick as oil prices dipped, and stocks hovered near record highs. Traders are keenly awaiting the U.S. producer price data for insights on Federal Reserve interest rates. This data could serve as a precursor to consumer inflation trends. There’s also attention on the upcoming auction of $25 billion in 30-year Treasuries, which might yield the highest interest rate in a quarter-century.

The Strait of Hormuz remains a point of contention—Iran’s Basij paramilitary group has declared it “under Iran’s care and control,” in contrast to President Trump’s assertion that the U.S. exercises “full control” over the waterway. This ongoing tension leaves the market in suspense about future developments.

2. The Bureau of Labor Statistics is set to unveil the July PPI at 8:30 a.m. ET. Economists project wholesale inflation to rise by 4.9% from last month, marking a decrease from June’s 5.5% increase. Understanding these figures is crucial for investors as they attempt to navigate the Fed’s next steps. Recent data revealed consumer price inflation fell to 3.4% in July, reinforcing the central bank’s argument for holding interest rates steady during the September 16 policy meeting.

Reflecting on my previous comments before Wednesday’s CPI report, I’m particularly interested in insights on inflation from S&P Global’s August PMI report later this month. An inline or softer July PPI could boost the market sentiment and prolong the current volatility we’ve been discussing.

3. Expectations are high for an AI startup to achieve a valuation of over $2 trillion in October, a remarkable figure that would surpass SpaceX and mark the largest IPO ever. Sources indicate that Anthropic’s rapid revenue growth is driving this potential valuation, which would generate substantial returns for early investors, albeit it also poses risks to a jittery public market amid the ongoing AI boom.

Without the ability to review Anthropic’s S-1, which hasn’t been posted on the SEC site yet, it’s tough to comment precisely on that $2 trillion figure. We’ll need to analyze its financials closely. Investors will particularly be focused on profitability and cash flow, especially after evaluating SpaceX’s filings. Anthropic’s roadshow, similar to SpaceX’s, is likely to spotlight these issues alongside long-term capital plans and additional revenue sources.

Once you have a look at the S-1 filing, you’re bound to have some thoughts, especially regarding its implications for OpenAI and our interests in Neostellar Capital and other investments.

4. Cisco Systems has released solid financial results, attributed to sustained demand for AI technologies. For its fiscal fourth quarter ending July 25, Cisco reported adjusted earnings of $17.3 billion, or $1.22 per share. Demand in its networking division, especially for AI data center equipment, has surged, with networking revenue reaching $9.79 billion—surpassing analysts’ expectations of $9.66 billion and growing 28% year-over-year. Cisco has noted $5.3 billion in AI infrastructure orders from hyperscalers, prompting an increase in its annual forecast from $5 billion to $9 billion. Wednesday’s report highlighted that the AI infrastructure orders totaled $9.3 billion, exceeding initial predictions.

Despite strong results, Cisco’s stock dipped on Thursday morning. This decline can be linked to a decline in the gross profit margin for the quarter, which fell to 66.3%, down from 68.4% last year, primarily due to increased costs in components like memory for AI hardware.

Nonetheless, Cisco maintained in its earnings call that it anticipates generating $7.5 billion from AI-related revenue over the next year, bolstered by a more than 100% rise in orders from hyperscalers in the last quarter. This suggests a positive outlook for the company’s AI and data center chips as they prepare for upcoming quarterly results. The tight supply in chip production could also set the stage for Applied Materials’ pending results later today.

5. Cerebras Systems faced a decline in premarket trading amid revised growth expectations. The company revealed that its quarterly sales would be around $215 million, slightly above the average predictions but below some higher forecasts. In light of hefty spending on data center tech, there had been hopes of stronger sales figures for Cerebras.

The volatility surrounding stocks like Cerebras reflects the intense market dynamics, especially heading into earnings reports. While the IPO price was high, Cerebras’ stock has surged roughly 55% since late July. The market’s reaction to both Cisco and Cerebras highlights growing concerns, which were discussed in previous commentary.

As we delve into the numbers and market chatter ahead of the quarterly reports, it’s worth noting that Applied Materials shares have increased about 25% from their lows on July 29. The company is projected to report earnings of $3.39 on $9.0 billion in revenue for July, with higher expectations for the October quarter. The difficulty lies in Wall Street’s lofty forecast of $4.06 per share and $10.3 billion in revenue for that quarter.

In light of recent stock movements, it’s unlikely investors will chase Applied Materials on the upcoming earnings report.

6. Lenovo Group out of China announced a 43% increase in quarterly sales, exceeding expectations for a 22% rise, benefiting from the AI hardware surge and global economic recovery. The company’s revenue reached $26.94 billion for the quarter ending June 30, surpassing analyst predictions. Lenovo is capitalizing on AI-driven demand, noting a 157% sequential growth in its AI server pipeline, now totaling $54 billion.

This news prompted rallies in HPE and Dell stocks, offering another data point supporting AI and data center chip sales following hyperscaler reviews.

7. Economic figures expected today include the July PPI, as well as weekly initial and continuing unemployment claims and EIA natural gas inventory data.

8. Companies reporting today include Applied Industrial, Bending Spoon, Birkenstock, MSG Sports, Nomad Foods, Tapestry, and Applied Materials later in the day.

Other Professional Portfolios

At the time of publication, TheStreet Pro portfolio was invested in Applied Materials and Neostellar Capital.