Closing Bell - Markets Test Their Momentum as Earnings Strength Meets New Risks 8/12/26

Episode Date: August 12, 2026

Eric Johnston, Chief Equity and Macro Strategist at Cantor Fitzgerald, explains why rising forward earnings estimates should continue to support stocks and why he expects tech to lead despite potential headwinds over the next two months. Earnings from Cisco and Cerebras, including reaction from Wedbush’s Matt Bryson. David Snyder, Managing Principal and Chief Investment Officer at Journey 1 Advisors, explains why he remains heavily invested but has added hedges as he prepares for the possibility of a correction or bear market. He identifies a potential oil price spike as a key risk that could tighten financial conditions. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The Bell's bringing in to the Trading Day at the NYSE. Jeffrey is doing the honors. And at the Nazak, the International Youth Foundation and the Caterpillar Foundation, ending the trading day. Welcome to closing bell overtime. We're live from studio at the NASDAQ market site. I'm Melissa Lee along with Mike Santoli. Mix day on Wall Street is a doubt unable to hold on to earlier gains ending mostly flat on the day. S&P up about 0.2%.

The NASAC, the leader, up about a half a percent. S&P and NASAC posting their first positive session in three. Momentum, a standout at today's session with semis and other AI infrastructure. structure stocks back in the spotlight. We'll have much more on that ahead. And we're awaiting two key reports in the AI ecosystem, Cisco and Cerebrus. Cisco has a lot to prove with a stock up 23% since its last report, the top performing Dow stock this year. We are within a percent of highs in the S&B 500, and this just feels like a churn might at this point. Without a doubt is. I mean, the S&P is flat on the week. It's basically what it was one week ago as well. So just a little bit

below those intraday highs. What's fascinating is for a flat S&P 500, Amazon, Alpha, Apple, all down 3% this week. Yeah. Right? So you basically had the stuff that got us to the records is now undergoing profit-taking alphabet meta, kind of struggling with their 50-day moving averages. So it's all to say it's still unclear if you can trust the makeup of this latest thrust higher. Not that it's a problem.

I don't think there's a trend that's eroding, really, but it's one of those things where the market sort of grabs at what works for today keeps the index in the game, and you're not really sure if that translates into tomorrow. And obviously for today, at least we had a re-ignition of the momentum trade with all the earnings after. I mean, SMCI, you know, all these names that had been sort of the poster children. Even Bloom Energy, off the comments, right, from one of the reports last night about using Bloom, as sort of behind the paywall, enhancing projects. That got a huge bid.

So that's where the markets are at right now. It seems like a paying trade, obviously. That's the stuff that was under liquidation in July. SpaceX up like 13% on the day. There's no news there, except that it's an AI infrastructure play right now. And that's why I also called a little bit of a squeeze, not just that people all of a sudden will reassured of the fundamental story. Let's get over to Christina Partsenevless.

He's got more on today's market movers. Christina. Yeah, well, stocks climbed today after the July inflation landed right where Wall Street expected. And, of course, a strong round of tech earnings. You guys really spoke about. So the standout this quarter was breadth. Goldman Sachs saying that nine of the 11 S&P sectors right now are growing earnings at a double-digit clip, Specifically with the AI infrastructure trade roared back today,

Corrieve, Super Micro, Nebius, all jumping on results with bullish signals, specifically on chip demand and GPU pricing that seems to keep climbing for even older chips. Rough sell off in July, so this was a reason to get back into the name, something Mike just mentioned. One line from the Nebius call said it all. There are several buyers for every GPU and prices are growing. You can see Nebius. Look at that. 2-day chart, 34%. Memory names also rallying, Samsung, SK-Hinix. Surgeoned report that Singapore's state-owned investment company, Temasek, wants to buy indirectly,

and that helped those names, as well as the DRAM ETF, again, with the momentum trade climbing over 7%. Chips gained at software's expense. The IGV was a little bit down, but workday, Adobe app-loving, some of the biggest laggards on the NASDAQ today, the NASDAQ 100 specifically. And then switching out of tech completely, retail, did lag today, especially these two names. So Gap fell about 3% after Jeffreys cut it to hold, really flagged. sagging softer trends at Old Navy, and then Tapestry also eased ahead of its earnings tomorrow, which I think are in the morning, a test of whether a coach can actually keep up its international

momentum and no more discounts in sales, et cetera. Guys? Yeah, something to watch for tomorrow. Thanks, Christina. Treasury yields easing slightly today as the latest inflation numbers were in line with expectations, easing the odds of a rate hike, at least just a bit coming in the coming months. Rick Santelli is in Chicago with more on all that. Hi, Rick. Hi, Mike, indeed. We see the odds have fallen in terms of what the CME probabilities are in the low 40 percentile last I looked. Maybe a closer look at the numbers this morning, which did come out as expected. Now, if you look at a chart going back towards 2024, if you look at the blue line, that's year over year. That includes food and energy.

And the big spike there on the far right hand side, that was the end of February, the beginning of the war. We could see what happened. But if you look at the orange line, it also popped at the end of February, but its 2.5% is back down to 2.5%. Now, what do those charts tell us? They tell us that the effects of the war, at least based on food and energy costs, predominantly energy costs, they've reversed out. And what's left is the headline number, which is also coming down. So many believe, as do I, that we need to ride this out to some extent, not to say that what's going on in the Mideease is going to completely dissipate its effects on the interest rate or the

inflation side. However, it certainly seems though the weight and sea game is appropriate from the Federal Reserve standpoint. As you look at how the twos and tens reacted right there a little past the middle is 830 Eastern. A lot of volatility and rates have floated back since that release, but we're still down a couple of basis points in a two year and we're almost unchanged back in the Melissa, back to you. Rick, thanks, Rick Santelli. Oil prices remaining steady today despite a new attack on vessels in the Red Sea. This is new ship tracking data shows that just 14 vessels crossed the straight of Hormuz on Tuesday.

Pippa Stevens got more. Pippa. Hey, Melissa, a tight trading range for oil today as both OPEC and the IEA cut their demand forecast for the year, with the latter now predicting a 1.6 million borough per day contraction. That's amid general ambivalence within this market that has seen such large swings over the last few months, based on rhetoric around a potential deal. Lipow Oil Associates, Andy Lipow, adding that increased production from Canada, the U.S. Guyana, Brazil, and Argentina is also helping to pick up some of the slack. Now, we did also get a bearish inventory report today that showed a surprise 17 million barrel builds in U.S. stockpiles. Kepler's Matt Smith, noting some of this was a timing impact due to a spike in Venezuelan deliveries,

which topped to 900,000 barrels per day last week, as well as subdued exports. Distillate exports, though, hitting a record high at 1.94 million barrels per day with supplies in both the Middle East and Russia currently offline. U.S. inventories declined slightly and are about 12 percent below the five-year average. Now, demand on the week was muted as this is seasonly a week period ahead of stockpiling for the winter heating season. Pippa, thank you. Cerebris earnings are now out. Justina Park's Nevelas has the numbers. Yeah, Cerebus beat on the top line core revenue of $210 million more than double a year ago. The loss per share came in at $2.98, though.

That's a gap number, so we're not going to compare to the non-gap figures that analysts use. Adjusted EBITDA was the actual standout. So this is the profit you take out, you know, before all the taxes depreciation, etc. It was a loss of $53 million smaller than the $79 million loss expected, so that's good news. And the company also raised its guidance. Surabra sees third quarter core revenue, so core revenue between $214 to $216 million, so just think midpoint $250 million. for the full year and then 880 to 890 million.

Margins, though, are going to drop sequentially in Q3. I spoke to the CEO Andrew Feldman, who told me the company is, quote, hustling. It's renting back capacity from a customer, specifically G42, on short-term deals, while signing customers to long-term contracts. So his words were gross margins will, quote, snap back up. And when I asked about Open AI's customer concentration, Feldman said, a frontier lab is going to be a big chunk of

any chip makers business right now, even in Vidias. Nonetheless, you can see shares dropping roughly 8%. And I know you also have the Cereba CEO tomorrow at 11 a.m., which I think, Mike, you were supposed to promo, but I'll do it for you. You just did it. Thank you very much. Yeah, 11 a.m. on Sots tomorrow. Well, after lagging for the past two days, tech was a big leader today as a momentum trade

came back to life. A change of pace from July when the momentum ETF fell nearly 13%. Will tech go back to dominating the market? And if so, will it keep stocks marching to new highs? now is Eric Johnson, Chief Equity and Macro Strategist at Kandr. Eric, great to have you with us. For at least today, it looked great for the momentum trade, but I'm wondering how long you think this lasts. It feels almost like just a churning of different sectors in the markets from day to day. So I think that tech overall can do very well. You know, one of the things that we saw when the

market was in the S&P 500 was consolidating was there was this big negative correlation between the hyperscalers and the AI infrastructure names. And, you know, know, the more CAP-X that was expected, the market took it as a negative for hyperscalor and positive for everything else. I think now there's been an inflection where they can really work together. And it has started, and we think it's going to continue, because there's been this inflection in the view around ROI on this CAP-X. You're seeing it from the GPU rental prices are going higher. Cloud growth is, you know, accelerating. You saw that both from Amazon and Microsoft beating margins are expanding. And the CAPEX is being explained around how long it's going

to last and when there'll be an inflection around cash flows. And so I do think that they can now start to work together, even though a day like today, they went in opposite directions broadly over the last three weeks. There has been a material change. Yeah, I guess, Erica, see some work about, you know, how these momentum reversals have tended to go historically when they've get into these crazy extremes, then you get the severe pullback as we've had. Recovery right now, it's not necessarily all that common to have a perfect V bottom back to the highs because what we now know in retrospect is those highs were set with a lot of leverage and crowding that maybe is not going to be rebuilt in a hurry.

Yeah, so we've done a fair amount of backtesting around how this, you know, has played out historically. And you typically get at minimum a stabilization. and which means that you, there are times that you simply just go sideways for a month or two. But in most cases, you get, in most cases you get a bounce. Now, the magnitude, you bring up a great point that if you look at, you know, are we going to go back to the highs? I don't think the highs are a great data point to point to because there were other things that were involved, as you pointed out, around leverage, that are unlikely to repeat themselves. However, if you look at the fundamentals of the long side of the momentum trade, they're

extremely strong and they are, you know, to some degree, you know, accelerating. And so as a result, in this case, our work shows that not only from a quantitative back test, but actually looking at the current fundamentals, that in this case it will be more than just a stabilization and they can start to actually work higher, which they've done over the past, you know, five to ten days. Right. Eric, hang on. Cisco earnings are out. We want to get to them with Christina Parts Nellis. We do see the stock jumping about three and a half percent.

Christina. Yeah, so we are seeing a top and bottom line beat, EPS of a $1.22 on revenues of $17.25 billion. The networking revenue did come in strong. 9.79 billion. Gross margins, we're just a hair above. Remember in the past of memory costs, components, supply costs, have really eaten in margins. so we'll see what they say on the call in regards to that. For the quarter, too, I should say the AI revenue.

So they are now saying that full year fiscal 2027 AI revenue could hit $7.5 billion. I know from the notes I saw we were talking about $6 billion, so that's a little bit higher. Full year guidance really strong, specifically for Q1. The range was $1 32 to $1.34 Street was anticipating 116 adjusted on Q1 revenues of 18 to 18.18. So that's more than a billion what the street was anticipating. So nonetheless, despite that strong guide, it seems like the market is trying to digest it. First, the stock was up, and now it's down about 1%. So really networking drove this business, and margins maybe could have been a touch better.

Just to clarify, Christina, they gave fiscal first quarter guidance, but not full year, correct? Full year was EPS5. $5.5 to $5.11 versus $1.4.5.1. the 488 estimates and then sees full year revenue at 72.2 billion to 73.4 higher than estimates. So yeah, they did. Okay, got it. Christina, thank you. Thanks. Christina Parts Nevelace.

Cisco CEO will break down the results tomorrow 9 a.m. Eastern Time on Squawk on the street. We want to get back to Eric, who's standing by, I think. There we go. So let's say tech is able to hang on to the leadership role. What happened to the broadening trade that we've seen? What happened to its financials, for instance? So I think that while the rest of the market, I think, is actually going to hold up. I just think it's going to be this sharp outperformance that goes on in tech.

You know, the fundamentals in a group like, you know, financials and anything that is levered to the economy is very strong because you're getting this. They're getting this wealth effect. You're getting the cap-ex, and you're getting the fiscal spending. And so the economy, despite what we're seeing a little bit of softness in the labor market, the economy, we think, continues to be strong, certainly throughout this year and into early 27, which should be a good backdrop for the rest of the market. It's just that the acceleration in and really the earnings growth that we're seeing, we're seeing these massive numbers, it's mostly coming from tech. And, but so, yeah. No, I mean, the growth there is obviously it's kind of drowning out all the other stories. There's this interesting offset, at least potentially, Eric, where the bigger the projections get about the volume of spend, how fast CAPEX is going to happen, they're going to bring all this capacity on where the earnings are going to flow.

It seems like that means the more capital is going to be demanded. And the more we have at least a fear of some kind of an overheat, which maybe pushes rates up. I mean, it's obviously not necessarily at this point undermining the whole story. I just wonder how you see that playing out. Yes, I think that's a big risk. And I think, you know, the amount of capital that is expected to be needed is going down to at least a marginal degree based on the increased cash flows from operations that are coming, you know, from the improved RLI that I was mentioning. But the needs are still going to be very large and we still have a lot of equity supply. coming to the market. And I think importantly, you know, one of the things that we're focused

on around earnings, the earnings growth in, you know, north of 30 percent sales growth in the mid-teens. But we have to be very real around where those earnings are coming from and that they're not your typical earnings that are just going to sort of grow in perpetuity. We're seeing this big spike and it's coming from what I would call a lower multiple place. And so we do have to be cognizant of that that it probably won't get the same multiple that we saw entering this year. We entered this year at a 23 multiple. I don't think we're going to see a 23 multiple again. And so we just to be careful around, you know, around the earnings that we're getting.

Eric, great to see you. Thanks. Eric Johnston. Great to see you. By the way, we were just showing Cebo matrix closing out the trading day there for options. We also want to point out the decline in Cerebris down about 12% in the after-hour session on the back of its results. A lot of it wasn't comparable, but hardware sales did look like it was a disappointment. So that's what may be dragging the stock down. And these tiny tweaks to revenue

guidance for the rest of the year. I mean, given the volume of dollars in play, it was just like 868 up to 880 in terms of annual revenue. And this is a, I don't know, $72 billion market cash. So it's obviously a big lift to kind of grow into it. Yeah. Coming up in overtime, a look at why McDonald's may be on the verge of a breakout plus Goldman Sachs. Dives further into the ETF business, we will dive into Cerevers' earnings to the stock. As we mentioned, down 12% after hours. You're watching closing bell overtime live on the NASDAQ market site. For watching, shares of Cerebris in the after hour session down by more than 12%.

Reporting earnings moments ago, Cerebus finishing the day up 12%. Joining us now is Wedbush Security Semiconductor and hardware analyst Matt Bryson. He's got a buy rating on the stock, mark, a price target of 280 bucks. Matt, great to have you with us. What's your initial take and why the stock is down? When you look at the guide, particularly the revenue guide, I think people were expecting a little bit more, right? It's just ahead of my numbers, for instance. And when you look at a company coming public, there's an expectation that they set themselves up with a bit of leeway to beat,

and at least on the revenue side of the thing, they didn't quite get there with a guide. And what's the thesis at this point? I mean, we should keep in mind it was this sort of highly anticipated blockbuster IPO. The stock traded as high as 386. It's down in the current after hours around 230. So in terms of the longer term proposition, has it evolved, has it changed? Where does this company sit in the whole mix? So I think actually, from a thesis perspective, you've got relatively good news, right? In that last quarter, you had, last quarter, you had. A&D working with them using the Cerebra system paired with instinct for fast inference. You have that dealing with crowd strike. And so their proposition is they're going to see share gains. The way you get share gains is by getting new partners, new customers. And you had a couple announcements last quarter.

So, you know, I think pieces wise, they're in good shape. aside from the guide matt i mean were there any other line items that jumped out at you maybe disappointing do you think the guidance is maybe just being conservative on the out quarters oh i'm sure they're being conservative on the out quarters right they they came in and had the numbers um it's just i i think again that you know people are looking for a little bit more than a than a few million of growth but i mean you look at gross margins they they were above what i had modeled. You look at revenue, it was above what I had modeled. And so it's not, I mean, I just think, again, it's, there are relatively high expectations. This is a company trading on

2028 numbers. And so just people are looking for more of a beat this quarter. Yeah, one of the, I guess, selling points of the company and its strategy was, you know, allowing customers to use less memory. They came public probably at a time at the most, fevered moment for people worried about the scarcity of memory long term and the pricing and all the rest of it, you know, memory stocks obviously are way off. Is that, has that equation changed at all? Or is it just been, you know, memory got super overbought and had to come in? So I think with memory certainly, memory got to loft evaluations. But then, you know, I spent the last week at a memory of storage conference. It's very clear there's just not enough DRAM. There's

just not enough man. That hasn't changed. Prices are still going up in Q3. I still think that's a advantage that Cerebrus has is going to last through 27 that's going to probably last well through 28 where they just don't need HBM. And so it's cheaper to run their systems and they don't have a constraint that is affecting everyone else making or most everyone else making accelerators. We're just about 40 minutes away from the call. Matt, what's your question to management? My question to management is where are you in terms of getting new customers? So it's really hard with new tech to evaluate where it is versus old tech.

I think one of the reasons I'm so positive on Cerebrus is they signed OpenAI. They signed Amazon, right? So they have the best and brightest in the world, choosing their technology. And so I want to see more customers. Now, having said that, they have their big user conference next week, and I would expect that that's where we're going to get customer announcements. Sounds good. Matt, appreciate you jumping on. Matt Bryson. Just ahead, as the markets continue to mark toward all-time highs,

are investors overlooking potential landmines like yields, geopolitics, and AI spending that continue to grow? We'll debate that. And be sure to check out my new weekly Market Memo Newslet. featuring analysis of key market themes, whose commentary from top traders and investors. You can subscribe at cnbc.com slash market memo, closing about overtime. McDonald's has been suffering this year compared to other competitors,

but Wolf Research is turning bullish after looking at the stock's technicals. The firm says the stock is starting to gain traction at longer-term channel support. $300 is near-term target before facing resistance, but the last two similar setups have shown the stock should be able to accelerate through. $300 still quite a ways from here. I mean, it had troubled earnings. It seemed like it had an execution problem. It wasn't like locking in the customer based on value,

sort of missing that marketing opportunity there. I do realize that was certainly a technical call, but it did coincide with the fact that the valuation has hit the bottom of like a 10-year range, too. It has rarely traded below 20 times forward earnings. It's right there now. So maybe things are converging where it gets some relief on that. Goldman Sachs, meantime announcing today that it will acquire ETF provider, Nios Invest. for over $2 billion in cash and equity.

Nios manages $30 billion in assets across options-based income ETFs. The deal would place Goldman Sachs as a top-eight active ETF provider. This deal comes months after Goldman completed its acquisition of innovator capital management. It's another ETF provider. The deal with NEO's investments is expected to close in the first quarter of 2027. I mean, one of the fastest growing parts of ETFs, not just active, but options-based. usually it's selling options for income. It's kind of a cash or bond replacement type strategy. And I think it just fits in with Goldman wanting to sort of beef up on the asset management side and serve their type of client.

And of course, all the companies that have done that in terms of adding ETFs and adding asset management, smoothing their earnings a little bit as opposed to completely. Yes, that's absolutely ideal. Yeah, subject to the capital. I think this company they're buying NEOS is only four years old, too. Oh, wow. Not a bad trade. Time now for our CNBC News Update with Brandon Gomez.

Hey, Brandon. Hey there, Melissa. That's right. Paramount Skydance has reportedly talked about creating a board to ensure CNN's independence as the company works through its acquisition of Warner Brothers Discovery. The Wall Street Journal reports the editorial board for CNN would also include other safeguards to address concerns over the news operations independence. The merger is now on hold pending an antitrust lawsuit filed by California and 11 other states. And the price of lettuce fell a whopping 16% in March, according to the Consumer Price Index released earlier today. That's the largest one-month. decline on record and is being attributed to the cyclospora outbreak several restaurant chains with lettuce on the menu reported a drop in traffic, even if they didn't have contaminated supplies. An 18-year NBA veteran Russell Westbrook announced his retirement from basketball today. The number four pick in the 2008 draft played for seven teams over his career, but spent the bulk of it with the Oklahoma City Thunder. He was the 2017 NBA MVP and holds the record for most career triple doubles in history with 209.

Melissa, send it back to you. He played for as long as probably some of his new teammates have been alive. Brandon, thank you, Brandon Gomez. Up next, Journey 1, Advisor, Chief Investment Officer, David Snyder on why he thinks we could be on the brink of a market correction or even a bare market. Find out how he is hedging his bets when closing bill overtime returns. The S&P 500 within about a half percentage point of all-time highs

and the equal weight index hitting a record yesterday as markets continue to grind higher after a brief swoon in July. Investors cheering cooler inflation, strong earnings growth, and the broadening out trade. In fact, according to Jonathan Krenzky at BTIG, today is the 183rd straight trading day without an 80% downside volume day. That's the longest streak in at least 30 years by at least 50 days or by nearly 50 days. But our investors too relaxed as they look past geopolitical instability, runaway AI, spending and an untested Fed chair. Joining us now is David Snyder. He is CIO and managing principal at Journey 1 Advisors. He's also known as my former mystery broker source, someone whose market views I've been sharing going back more than 15 years. David's good to see you again.

Great to be back. Let's see you, Melissa. Just frame out the big picture of where you've kind of been thinking about things. So for one, I guess you feel like this AI tech rally is kind of a last hurrah for this long-term secular bull market, but you were giving room this year. for, you know, certainly the indexes to carry higher. But now maybe we're bracing for a little more turbulence? Yes. So, you know, I was on here in December. You know, I said this year would probably still be a good year.

I was, my concern is that within, I had said within the next two years, the secular bull market would end, likely end. So it's very difficult. I'm looking for catalysts. So even though I've called it a bubble of the AI, I still have not. said it's going to burst. You need a catalyst. The catalyst has always been tighter financial markets conditions. So we really haven't had that and you know, but we got a chance of that happening a little bit here in this fall because a

10-year Treasury keeps going up. I mean I had forecasted because I didn't think worse was going to raise rates being loyal to Trump. I thought you know that the 10-year would rebel and that's kind of what happened after the last meeting. But But, you know, we're seasonally in a bad time. You know, it's amazing how risk kind of ramped up quickly after this correction. And, you know, I think this oil price is probably, I don't see any chance for any kind of agreement that's lasting before the election. And we are, you know, we've been very lucky that oil prices haven't gone higher and stayed higher. But, you know, we're at a threshold now where, you know, if it doesn't, you know,

If the strait is still closed for 5 or 6 million to 10 million barrels a day, eventually we've used up all reserves, and China has been out of the market for nine months. So I think there's a lot more potential for oil to go back up and cause havoc. So I do think there's a chance. Now, whether this correction is the start of, you know, the end of the secular bull market, I don't know. I mean, there's not enough room. I mean, there's not enough that I can say. So, Dan, you know, you have a laundry list of concerns, but without a catalyst here, do you just hold your nose and continue to be long this market effectively?

Or are you positioning for that catalyst to materialize? Well, I've been 90% long most of the year, but I do have a hedge. I did have a hedge during the war, which basically was break-even, but it reduced the volatility. but I do have a hedge in now till the election. So, yeah, no, I think we're getting closer. I think it's going to be within the next year. You know, I think that the earnings growth is just surreal. You know, I had written about this, but in 1950 to 2000,

earnings growth for the S&P grew exactly the same. as nominal GDP growth. And it makes sense theoretically, because you're just, GDP growth is just how much value is being created. And is it going to go to labor or is it going to go to shareholders? So GDP, so both grew at 7%. And then real GDP, of course, grew at the same at 3.5%.

Since then, real GDP's grown at 2.1% since then. So it's almost half the rate of the last 50 years of the last century. But earnings growth has still been 7%. So theoretically, that shouldn't happen. And academic studies have shown that it's from lower interest rates, lower corporate tax rates, and also lower compensation as percentage of revenue. And labor as a compensation as a percentage of revenue is going from like 62 to 52%

over the last 20 years. So you can't, we're pulling rabbits out of a hat for earnings growth to go faster than nominal GDP. And it's happened before, by the way, in the late 40, 1940s, earnings growth was a lot higher than nominal GDP for a while. So this isn't the first time. And I am the biggest reversion to the mean guy. And everything is, if you return on equity in earnings revert to the mean for the last

hundred years, I don't see that changing. I just don't. So now since 2000, nominal GDP has grown at 4.5%. And earnings have grown at 7.5%. But what's amazing is since 2023, if you've, use estimates of about $400 for the S&P for 2007. So earnings were, I think, in 23, were like 221. So that's an 82% gain. And nominal GDP, based on estimates, will be up 28%. I don't think we've ever in the history of our economy ever had earnings growth grow 82%

with nominal GDP growing 28%. So that's the answer to the bulls who say, well, you know, earnings are growing faster than stock prices. Therefore, we've had a little bit of a compression. evaluation. Yes, and I've looked into why that's happening. So, first of all, everybody talks about free cash flow growth as value in companies. All of a sudden, when free cash flow is now normally free cash flow is 90% of earnings, conversion. Now it's about 67%. So as soon as free cash flow diverges from earnings, what does everybody say? Oh, earnings are important, not free cash flow. Isn't it nice how convenient that is? But when you think about the free cash flow growth, you think that what's going on is all the receivers of the spending from the hyperscalers, right,

is coming from the hyperscalers who have, which makes, which have negative cash flow because of that. And the hyperscalers, any cash flow they're getting is from, from the frontier models like Anthropic and Open Eye. And they, Anthropic and Chatteepe and Open Eye have negative free cash flow. So you have to raise money. So you have earnings all based on negative cash flow from the hypers who get their money. And they have to raise money. So you have earnings. So you have earnings are all based on negative cash flow from the hypers who get their money from the frontier models who have negative cash flow, right? So there's that that doesn't make sense. No, we got to see maybe into next year if that starts to come to the head.

So whenever you have this high cap X relative to revenues like the hyperscalers have now, I think it's very similar to like an insurance company's earnings. You know, your insurance companies have no reserve based on their estimates of what their claims are going to be in the next couple of years. So when the hyper-scarers depreciate the 20%, they're spending each year, they're guessing, or they're hoping that in three or four years, that's gonna pay off.

So it's, in other words, earnings are more of a guess now than they are if your cap-x is much lower because you get the returns much quicker. So that's a big deal that people don't really realize. And so I think that, you know, all those things we're not gonna know for a couple years, And here's the other thing. You know, Google Alphabet gets, will have 50% of their cloud revenue next year from two companies.

Yeah. From Anthropic and from Chatji, you know, from Open AI. So that's a lot of concentration. And, you know, OpenAI doesn't have the greatest balance sheet. Yeah, right. And if you get this incredible competition from China and they have to drop prices dramatically, and something happens to open AI, it would just cause a whole havoc and chaos in the market. It's pretty tricky. Yeah.

There's a lot of things that can go wrong. Dave, really appreciate it. We'll have you back as things develop. Thank you very much. Dave Snyder. Let's get back to Christina Parts de Navala for more on Cisco's results. Christina. Yeah, you're seeing Cisco's shares reversing lower even after a higher guide, and they raised their fiscal 2027 AI revenue target to 7.5 billion up from $6 billion. And the sticking point might be gross margins. Cisco guided between 65 to 66% short of the 66.1% the street wanted.

But I'm here because I just got off the phone with the CEO Chuck Robbins and asked specifically about memory costs hitting margins because that's been an issue in the past. It's hitting Dell. It's hitting everyone. He kind of pivoted straight to operating margins or record saying it was at 35.9% probably an all-time high. So I guess the message is gross margins are lower, but scale more than covers it. so the operating margins covers it.

In terms of demand, it's broadening beyond the hyperscalers, too. Product orders up 35%. Still without them, up 25%. Chuck Robbins called Telco, an incredibly strong segment that is growing. And then last but not least, I asked about security because that's a point of weakness for, or I should say, it's not growing as much as networking. It grew 14% in the quarter, but the CEO told me that came from a one-time

Splunk Mix-Shift, so you stripped that out, and security actually exited the year at high single-digit. He expects it to be back there in fiscal 2027. So you can see shares initially popped now down about three and a half percent. However, they did climb over 2 percent into the close today. Exactly. Christina, thanks very much. Up next, Fast Money's Guy Adami on how he's trading Cisco shares following those results and checking in on Cerebrates. The stock moving lower after hours off more than 15 percent right now, despite what look like strong results, company plans to more than triplice revenue in 27, saying the demand for fast inference is enormous.

Clos of all over time. We're right back. Cisco now lower, despite beating earnings and raising fiscal 2027 AI revenue targets. Investors seem to be focused in on gross margins, which fell short of Wall Street expectation. Stock is down 3% after hours. Joining us now, Risk Reversal Media, co-founder and Fast Money Trader Guy Adami. Hello, everybody.

Hello. Hello, Michael. I mean, this is a stock that was up 60% year to date. Tremendous. Just not enough. Who's the handsome person that typically sits right here in this seat? That would be Tim Seymour. I'm not trying to ask trick questions.

Tim has been all over this for quite some time. AI infrastructure is absolutely real, and it's like the reemergence of Chuck Robbins 30 years later, here we are, and Cisco's doing its thing. I thought the quarter was great. I think the reaction is giving back what we gained today. And to your point, it's at a huge run. If you believe that this is now a growth story, which the numbers suggest margins notwithstanding, it's the best productivity they've had in three decades. And you've got to buy the stock. But if you think this is just an anomaly and this whole thing goes away, then it's ridiculously expensive.

Well, I also wonder, I mean, what they categorize as AI revenue and their guidance was like for $7.5 billion for AI specific revenue. It's a little more than 10% of revenue for the whole company. Right. So it's like how was the market going to view and value? Okay, are we going to trend that? I mean, I don't know what the trend continues. Neither do I. I don't know the trend.

I think some of the numbers we're looking at like $9 billion perhaps for AI guide. Fair enough. So you say, is Cisco potentially commoditize them in AI infrastructure? structure, but, I mean, it's hardware effectively. And you know what? You're not going to pay 25. Where's the trade run that you have in front of you? 25 times next year's numbers. Right.

Or you can say, you know what, they sit in a catbird seat and these numbers are going to continue to grow. I think the run is a little excessive. I see what the stock is doing in the after hours. I don't think you have to buy it here, but you absolutely have to believe that if you believe the infrastructure, the AI trade is real and that all the spend we heard on this desk three nights ago is real, then Cisco is almost at the epicenter of this entire thing. What your thought in Cerebris was just dropping like a rock after? You know, you just had, by the way, I met the mystery broker outside.

First time. Yeah, Dave, sure. Yeah, it's fantastic. I didn't know I was out of the call him, but you apparently came out in December. Oh, you know, he uses that as like a social media handle. Yeah. He was talking about exactly what you're talking about, the lack of performance in some big-name IPOs this year. And he said, you know, I don't know what that necessarily means, but he didn't think it was a good thing.

And so I think this sort of falls into the category of a lot of the other IPOs. we're seeing. By the way, Cisco's run in the last like two years. It's not outperforming the SB on a 20 year basis. Wow. It made it all back. No, not all. It's amazing. It's insane. I think the prior, you have it in front of you,

the prior all-time high going way back with 70 or something. And then you saw how, once we went through there, you see the stock almost double from that level. Can I sit here or should I leave? Whatever you want. Just be quiet. No, it's not whatever I want. I know it's not whatever I want. See you later. Up next. The details.

the reportedly record-breaking sale of the Los Angeles Lakers, just a year after the team was sold for what was at the time, the highest price ever. Closing bell overtime, live from the NASDAQ market site. We'll right back. Welcome back. Madison Square Garden Sports, the holding company for the New York Knicks and Rangers hitting a record high today.

The move came as the Los Angeles Lakers were sold earlier today in a potential record-breaking sports deal. Alex Sherman has the details, Alex. Yeah, was it Donald Rumsfeld that said there's the known-nones and the known unknowns. That's sort of what we have in this deal. Let's start with the Knones. We know that Josh Kushner and Bob Iger in a consortium are buying the majority stake in the Los Angeles Lakers from Mark Walter less than a year after Mark Walter bought the team from the bus family for a $12.5 billion valuation. We know that Kushner and Iger

were looking to buy a Las Vegas team, an expansion team, and then pivoted to buying the Lakers after they found out that Walter was willing to sell the team. Now let's talk about what we don't know. We don't know why Mark Walter exactly wanted to sell the team less than a year before he bought it. Clearly, he's making quite a profit here in less than a year, two and a half billion dollars more in terms of a valuation than when he bought the team, which was for a $10 billion dollar valuation, which was also a record valuation at the time he bought it. We also don't know what Jeannie Bus's role is going to be in this new setup.

We do have a quote, Bob Iger actually just within the past hour or so, spoke with the California Post. I will read what he said. He said, we have every intention to honor the agreement that was made between Mark, Walter, and Jeannie Bus. If things change, they'll change. Little ominous there. The agreement he's talking about is that Jeannie Bus is still the governor of the Los Angeles Lakers. in essence, she's still kind of running the operations of the team. So we'll see if she has a role in the new Iger Kushner era of the Lakers,

assuming that this deal gets approved by the league, which we conceivably think will happen in the coming months. So we say we don't know exactly why Mark Walter might want to sell so quickly after buying it, but don't we have some idea that perhaps he was a motivated seller? He's got some other things going on? So we have a lot of circumstantial evidence at this stage. We know that there is an investigation going on with some other assets of his insurance assets within his larger holding company, both by U.S. prosecutors and the SEC. We also know that he's trying to raise capital for these insurance assets so that there's not a credit downgrade associated with them.

We also know that the Wall Street Journal put out an article a couple weeks ago speculating about Walter's health and that he had a stroke in late 2024. So it could be a combination of any of those things. A person familiar with the matter did tell me that it has nothing to do with the insurance assets. But we don't know exactly all the full details yet. So at this stage, it's just speculation. All right. Alex, thanks. Alex Sherman. Thank you. Let's get you set up with tomorrow's trade today.

another reading on inflation headlines Thursday's economic calendar. Economist expecting both the July producer price index and the core PPI to rise by 0.3% from June. Also on tap, weekly jobless claims. On the earnings front, we'll get results from applied materials, tapestry, Birkenstock, bullish,

and JD.com. But, of course, we're looking forward to what's going to be revealed on the CoreWeb Conference call as well as Cisco, which started at the top of the hour. Yeah, so negative reactions there after a day or really a couple of days where the AI hardware food chain really got an extra bid,

people getting more confidence that this was all going to flow through very nicely. And then, you know, PPI tomorrow, I always say it gives you a window onto PCE inflation, which is what the Fed watches. Today's CPI was benign. PPI. We'll see if that gives anything for markets to react to because today, not a lot. A lot. We had some flat bonds and stocks going on most of the day.

That does it for overtime. Fast money starts right after this quick break.