Cisco Systems shares skyrocketed nearly 20% in after-hours trading on Wednesday, igniting a fresh wave of enthusiasm for artificial intelligence infrastructure. The networking giant raised its fiscal 2026 outlook and hiked its AI order target to $9 billion, up from a prior $5 billion, signaling robust demand from hyperscale data center operators. The move helped the S&P 500 and Nasdaq Composite close at record highs, even as a hotter-than-expected wholesale inflation report kept the Federal Reserve in the spotlight.
Record Highs Amid Inflation Jitters
The S&P 500 added 43.29 points, or 0.58%, to settle at 7,444.25, while the Nasdaq Composite surged 314.14 points, or 1.20%, to finish at 26,402.34. The Dow Jones Industrial Average, however, edged down 67.36 points, or 0.14%, to 49,693.20, reflecting a narrow rally led by technology and communication services. Despite the gains, market breadth was weak, with declining stocks outpacing advancers on both the NYSE and Nasdaq, according to Reuters data.
Cisco’s AI Bet Pays Off
Cisco reported $5.3 billion in AI infrastructure orders from hyperscalers so far this fiscal year, prompting the company to lift its full-year order target to $9 billion. The company also announced plans to cut fewer than 4,000 jobs—less than 5% of its workforce—redirecting resources into AI, silicon, optics, and security. CEO Chuck Robbins stressed that success in AI requires "focus, urgency" and a sharp eye for channeling investment where demand is strongest, as reported by Reuters.
The AI rally quickly spread to other networking and data-center plays. Hewlett Packard Enterprise jumped 5.55% after the bell, while Arista Networks added 1.97%. Nvidia, a key beneficiary of the AI boom, tacked on an additional 0.87% in late trading. The Invesco QQQ Trust, tracking the Nasdaq-100, advanced 0.50% after hours, pointing to a strong post-close mood.
Inflation Surprise Keeps Fed on Hold
The rally unfolded against a backdrop of stubborn inflation. The Producer Price Index surged 1.4% in April, the largest monthly gain since March 2022, pushing the annual rate to 6.0%. Economists had expected a 0.5% monthly increase, according to Reuters. The hot PPI print reinforced expectations that the Federal Reserve will hold rates steady at its June 16-17 policy meeting. Prediction markets tracked by DeFi Rate, combining data from Kalshi and Polymarket, showed a 97.5% probability of no rate change in June. Polymarket also priced in a 69.3% implied probability of no rate cuts at all in 2026.
Wall Street economists are aligning with this view. UBS Global Wealth Management now expects the Fed's first rate cut in December 2026, pushing back its prior forecast of September. The firm noted that conditions for a September cut are not yet in place. Traders placed the odds of no cut in September at 87.4%, according to Reuters.
Earnings Drive the Bull Case
For stocks, the narrative remains tied to corporate profits. Morgan Stanley raised its S&P 500 year-end target to 8,000 from 7,800, framing the case as an "earnings story, not a multiple expansion one." The bank cited AI adoption, pricing power, and operating leverage as key drivers, as reported by Reuters.
However, risks remain. If inflation refuses to cool, with oil prices fueling wage demands and squeezing both services and corporate margins, the Fed could be forced to hold its line—or even hike rates further. Paul Nolte, senior wealth adviser at Murphy & Sylvest, warned that stubbornly high producer prices may "pressure the Fed not to cut rates," as reported by Reuters.
What’s Next?
After the bell, traders are clearly sticking with AI names. The question for Thursday is whether Cisco’s orders can draw in the broader market, or whether the record highs will continue to hinge on just a handful of firms fast enough to outrun rising rates. The answer may determine whether the rally has legs or is merely a narrow tech-driven surge.
