Inflation cools as AI infrastructure and memory rebound

Markets closed the week higher as cooling inflation offset early jitters over oil and CPI. AI infrastructure, memory, and semiconductors led the rebound, with fundamentals still pointing to healthy, durable demand. 

Inflation Cools, Rate Hike Fears Fade 

U.S. stocks finished a choppy week with modest gains. Rising oil prices and caution ahead of CPI pushed the market lower on Monday and Tuesday. Softer inflation data and strong AI earnings then lifted the S&P 500 to a record on Thursday. Stocks pulled back slightly on Friday after weak retail sales raised concerns about consumer spending. For the full week, the S&P 500 gained about 0.4%, the Nasdaq added 0.1%, and the Dow fell roughly 0.6%.

July's CPI report eased some inflation concerns. Consumer prices rose 0.1% for the month, while annual inflation slowed from 3.5% to 3.4%. Core inflation came in at 2.5%, and producer prices were unchanged in July. The numbers were calm enough to reduce the chances of a September rate increase.

AI infrastructure was one of the strongest areas of the market. Super Micro Computer and CoreWeave rallied after reporting strong demand for servers and cloud capacity. Nebius was another standout, rising sharply after quarterly revenue increased more than fivefold from a year earlier. These results suggest that demand for AI computing remains strong and that customers are still willing to commit significant budgets to infrastructure.

Semiconductor and memory stocks also continued to recover. SanDisk jumped after its Investor Day gave investors better visibility into its long-term growth and financial plans. Management expects AI inference to make data centers much more storage-intensive, supporting demand for enterprise flash and newer memory technologies. SanDisk's strength helped lift sentiment across the memory group, including Micron.

Fundamentals Still Support the Rally 

At Quantel Asset Management, we think the fundamentals across AI infrastructure, semiconductors and memory remain healthy. Major technology companies are still spending heavily on computing capacity, while demand for advanced memory and high-speed optical networking continues to grow. Recent weakness appeared to reflect profit-taking, crowded positioning and high valuations rather than a meaningful slowdown in demand.

Software and cybersecurity have also performed well. Investors are beginning to see more evidence that companies are moving beyond small AI pilot programs. Deployments are increasing, contracts are getting larger, and AI tools are becoming part of everyday business operations. Cybersecurity demand could benefit as organizations deploy more AI agents, cloud workloads and machine identities, expanding the attack surface and control requirements.

We remain constructive on the market, but we expect volatility to continue. Inflation is improving and corporate fundamentals are holding up, while oil, Treasury yields and elevated valuations remain important risks. If oil stays under control and yields stabilize, AI infrastructure, semiconductors, memory, software and cybersecurity could continue to lead the market.

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