Nvidia Crushed Earnings | but the Biggest AI Opportunity Is Still Ahead | Kenny Polcari

Well, good morning. Yes, here we are. It is Thursday, August 27th, 2026, and I am Kenny Polcari, your host of the party. And here are the things you need to know to get your day started today. Well, as you can imagine, Jensen crushed it. And guess what? Nvidia's up 7% this morning. Cybersecurity, that's becoming even more important as an investment theme going forward. And the eco data is suggesting that our economy is strong, but inflation remains a little bit sticky. Oil's down, bonds churning, and gold is down as well. And Jackson Hole's begun. Well, so what? It means nothing for stocks. And what are we having dinner tonight? We're gonna have the zucchini rolls. They are perfect. Now look, yesterday I ended my note with this: in the end, all Jensen has to do is validate the entire AI investment thesis, and my gut says he's not going to disappoint. Let's just see what the algos think. Well, let's just say it. He did not disappoint. He basically said that we can't keep up with customer demand. Revenue coming in at $96.2 versus the expected $92.3, up 106% year over year, up 18% quarter over quarter. Data center revenue surging to $89 billion, up 117% year over year. The company returning $26 billion to shareholders through buybacks and dividends. It still has another $99 billion authorized for buyback purchases. And the guidance? Bam! 3rd quarter revenue is expected to be $108 billion, and that's bingo, plus or minus maybe a couple of percent, with gross margins of approximately 74%. And importantly, that forecast assumes zero data center compute revenue from China. So no, the AI trade is not dead. The AI infrastructure buildout is not slowing, and the hyperscalers are not putting away their checkbooks. Jensen called it an inflection point. AI is doing useful work, he says. Its tokens are productive and profitable, and compute is now revenue. That, ladies and gentlemen, is the whole story. Now, you can see that I did a piece with Liz Clayman yesterday on Fox Business at 3 o'clock. We talked about this very fact. You can find the video on my Twitter handle, @KennyPolcari. You can find it on my LinkedIn, and you can find it in my Substack note. And so just like that, The initial moves of the algos and the traders, they hit the sell button, just like I said in the moments after the announcement. They sold it down about 3%, and then suddenly they decided what they heard, they took it all back, and the stock is trading up 7% this morning. So a 10% swing from last night. And as if that wasn't enough, Salesforce impressed as well. Traders sent the stock up 11% after they also reassured investors that they can compete and monetize in the AI era. This morning, Salesforce is trading at $230. And if you look at the chart, it is beautiful. Now, that matters because the AI story cannot live on chips alone. Infrastructure spending ultimately has to produce useful applications, productivity, and revenue. Salesforce gave investors another piece of evidence that the monetization phase is beginning to broaden out. And speaking of broadening out, The AI opportunity. Let's talk about cybersecurity, because cybersecurity names have come under pressure lately. The cyber ETF is down 11% from its highs, although it is still up 31% year to date. Now to me, that pullback creates an opportunity because going into 2027 and beyond, actually now and beyond, cybersecurity is going to become one of the most important secular technology themes that we've seen. And AI is very much a part of that story. In fact, AI makes cybersecurity more important. Now, names in the sector include like Palo Alto, Fortinet, CrowdStrike, Cisco, Broadcom, Zscaler, and Okta, right? Those are some of the names. Now think about it. The more AI we deploy, the more the data we move into the cloud, and the more autonomous agents we place inside corporate systems, then the larger the attack surface becomes. And guess what? The bad guys have the AI as well. So AI becomes both the problem and the solution because it makes hackers faster and smarter. It produces better phishing attempts, more convincing impersonations, and more sophisticated attacks and automated vulnerability, right? I mean, come on, have you not noticed? Have you not been getting these sophisticated texts and emails? You know, I've been getting them over the past 6 months. I mean, every day I'm getting texts and emails from people I don't know asking me questions. Every time I turn around, it's another unsolicited Unsolicited text from an unknown number just waiting for me to click the link below. Then we have these AI agents, and this is where the game really changes, right? Because we're moving from people simply using AI to AI agents actually doing the things that we're worried about, right? They're accessing databases, moving information, writing code, retrieving credentials, and communicating directly with other systems. Every one of those agents becomes another identity, another access point, another door that somebody has to protect. And look what happened during, you know, the latest Anthropic cybersecurity testing. Claude models reached live into the internet from a value— from their evaluation environment and gained access to other real systems, right? That doesn't mean that the models suddenly woke up and decided they were going to be, you know, criminals. But what it demonstrates is what can happen when powerful autonomous AI agents are given the tools and the access and objectives without sufficient guardrails. That is the risk, and it's also the opportunity. The same IA that allows these attackers to operate faster can help cybersecurity companies identify abnormal behavior, direct threats, and respond to those attacks in real time. As the attacks become more automated, the defense has to become more automated as well. Global information security spending is expected to reach $244 billion in 2026, up nearly 12%, and that number is going to continue to grow as companies are forced to protect their cloud system, their data, their employees, and now their agents. So for me, the recent weakness opens the door to another investment opportunity, another theme, right? You can own the individual leaders if you want, or you can use like the ETF, the cyber ETF, to own the broader theme and reduce company-specific risks. Either way, the investment thesis is straightforward. The more AI we deploy, the more cybersecurity we're going to need. AI is creating the threat and cybersecurity companies are trying to build the defense. In the end, you need to do your own homework. You need to reach your own conclusions. I am not telling you to go all in. But I am saying start with that basic premise and then do the homework and move on from there. Okay, so now that's over, let's move on, right? Stocks spent Wednesday doing a whole lot of nothing, right? They just kind of churned in places. Investors waited and waited for Jensen to take the stage after the bell, and by the end of the day, it showed what— how the market performed. The Dow lost 113 points. The S&P gave back less than 2 points. The NASDAQ lost 21 points. The Russell ended essentially flat. The transports gained 127 points. The equal-weighted S&P lost 4, and the Mag 7 gave back 45 points. Essentially, essentially it's a non-event, right? It wasn't a sell-off, it wasn't a rally, it was just the market holding its breath ahead of the most important earnings report of the quarter. Of the 11 sectors, industrials, utilities, tech, energy, and basic materials all advanced. Healthcare lost 1%. While communications, staples and discretionary, and real estate all came under some pressure with financials basically closing unchanged. Further down the list, airlines got whacked, losing 1%. The value trade gained 0.7%. Semis were up 0.3%. Cybersecurity was up 1.3%, to my point. Metals and miners lost ground, down 0.5%. Software gained 0.5%. Aerospace and defense gained 0.9%. Now, bonds lost a bit of ground. The TLT and TLH both down about 0.2%. Leaving yields mostly unchanged. The 2-year is now yielding 4.22%, the 10-year is yielding 4.66%, and the 30-year is yielding 5.18%. Now, it leaves the long end of the curve just below what I consider my danger zone definition, but let's not kid ourselves, it is still high enough to pressure stock valuations, raise mortgage costs, raise corporate borrowing costs, and raise the government's interest expense. Yesterday's eco data headline PCE, the Fed's preferred inflation gauge, rose 0.2% in July and remained at 3.7% year over year, slightly hotter than the expected 3.6%. Core CPE also rose 0.2% for the month and up 3.3% on the year. Personal income was up 0.4%, 2 times the estimate. Spending increased by 0.2%, also better than expected. Second quarter GDP unchanged at 1.5%. We talked about that, but the headline doesn't really tell the whole story. Final sales to private domestic purchasers was revised up to 4.2%, while corporate profits surged by more than $400 billion. Durable goods orders reinforced the point. Headline orders rose 1.1% versus the expected half a percent, led by transportation. Ex-transportation orders gained 4/10, while orders excluding defense rose 1.3%. So here's the message to take home. is clear. The economy is not collapsing, and consumers still have income, and businesses are still investing, and corporate America is still making money. But inflation remains above the Fed's 2% target, and that means the Fed does not have a reason to lower rates. Just to be clear, rates are not going down, but I'm not sure that they really have a reason to raise them either, right? But It will keep the hawks in the room. Now, oil, though it continued to offer some relief, WTI did slip another 2% to settle at $82.23, and Brent fell 8/10 at $87.84. This morning it's flat. Brent is up 50 cents. The move in oil, a direct reaction to the conversations between Iran and Oman and the possibility of opening the Strait of Hormuz, completely opening it. In addition, the EIA reported that US crude inventories rose by 95,000 barrels, The 4th consecutive weekly build. Recall yesterday the IEA also reported an increase in crude inventories. So, so, so there you go, right? More supply. So while oil is backing off, don't confuse it with a resolution of the Middle East problem because it is not. Geopolitical risk has not disappeared, and any disappointment over negotiations can put the geopolitical risk premium right back into the price of a barrel of oil. Right? It's not over until it's over, and it ain't over yet. Now, gold also came under a bit of pressure as bonds declined and yields held steady. Yesterday it lost $64 or 1.3%, leaving us now below $4,600. This morning gold is down another $12 at $4,581. Nothing about the long-term gold story has changed. Trendline support's down at $4,520, short-term resistance at $4,700. A failure to hold at $4,520 is going to see us test 43.80. So now we're back to the same place. Earnings are supporting stocks, rates are limiting how much investors are going to be willing to pay for those earnings. That does not mean to abandon the technology or the AI theme. It is the moment to recognize that leadership is broader than 7 stocks, right? And I discussed this yesterday with Liz Clayman as well. You'll see that on the link, uh, on the video as well. Consumer staples, likely the most boring sector in the group other than utilities, is having really a heck of a year. It's up 11.5%. Individual names up even more. We named 3 of them yesterday. Coke is up 28%. Archer Daniels up 39%. Target's up 67%. And that's just a taste of what's out there in that space. Meanwhile, an equal-weighted Mag 7 portfolio is only up 2.4% year to date. And within the Mag 7s, the performance is widely dispersed. Apple's up 14%. Nvidia's up 13%. Amazon's up 13%, Microsoft's up 2%, Meta is down 14%, and Tesla's down 21%. And that speaks volumes about having a well-designed and balanced portfolio to help you achieve your goals. Yes, you can own the brains and the power, you can own energy, infrastructure, cooling, memory, networking, the software, but you should also own financials, healthcare, consumer staples, SMIDs, right, small and mid-cap, and high-quality industrial companies that round out A good portfolio, because a great portfolio is not built on one story. Now, the eco data today, nothing that's going to be a market mover at all, so really no reason to pay attention. And the Jackson Hole boondoggle has officially kicked off. Everyone is making a big deal about what Kevvy's going to say or not say. I'm in the camp that he's not going to say anything, not going to say anything about the FOMC thinking, and I doubt he says anything about the tricks that Scotty Bessette is pulling. My gut says that less is more, and Kevvy has made that also very clear that he thinks less is more because that's how he feels. And by the way, the theme of this year's Boondoggle is payments and processing, and that has nothing to do with inflation and/or monetary policy. So my gut says Kevvy's going to say nothing. This morning, European markets are a little bit lower. U.S. futures are also confused. The Dow futures are down 30, but the S&P's are up 21. NASDAQ's up 290. And the Russell's down 5. And I think it's clear why the S&P and the NASDAQ are higher and the rest of the market is just kind of churning. The S&P closed at 7,675, down 1 point. We're right in the middle of the trading range, 7,550, 7,800. So we're right there in the middle. The Nvidia beat is helping to push the broader S&P up. But are we gonna test the highs of 7,800? Not today. If you'd like to discuss your goals or evaluate the risk in your portfolio, you know what you can do. You can give me a call. At 561-931-0190, or better yet, you can go to the website, slatestone.com, and just click on the Contact Us page. Because I'm always happy to provide you with a complimentary portfolio review and risk assessment of your own portfolio. Right. Now, what are we having for dinner tonight? We're going to have the zucchini rolls. They're a great way to enjoy zucchini. They're easy to make, and they're great to eat. So for this, you need green and yellow zucchini. You're gonna slice them lengthwise into thin strips. Think like ribbons, right? You can use a mandolin so they're nice and perfect. You need Italian seasoned breadcrumbs with fresh mint and fresh basil. You need sliced prosciutto. You can use ham. And you need sliced provolone cheese. Now, you can use another cheese if you want. I prefer provolone, so I use a provolone, but you use what you want to use. Now, once you slice the zucchini lengthwise, you're gonna brush it with olive oil on both sides, and then you're gonna dredge the slices in the breadcrumbs. Again, on both sides, right? Now you're going to lay them out on, on a piece of tin foil. You're going to lay a slice of prosciutto on top of the zucchini and then add a layer of the cheese. Then you're going to get your Pyrex dish. You're going to lay a piece of parchment paper in the bottom of the dish. You're going to spread some olive oil on the bottom of it. Now you're going to roll up the zucchini like a pinwheel, and then you're going to place them in the baking dish on their sides. You're going to fill up the dish so they're all nice and snuggly. Drizzle it with a little bit of oil on top. You're going to put it in the oven that you've preheated to 400 degrees. You're going to let them bake in there for 20 minutes, right, until it's all nice and bubbly and the breadcrumbs are a little bit golden and brown. They'll be delicious. Remove it. Let it rest just on the top of the oven for 3 or 4 minutes just so it cools down a tiny bit. And then just take them out with a fork and enjoy them. You can have them for dinner. You can use them as a side dish. You can use them as an appetizer. Uh, a chilled glass of white wine, that's all you need. It's perfect. Anyway, today looks like a gorgeous day here in South Florida. It's probably about 85 degrees right now, and it promises to be a beautiful day. Until tomorrow, take good care.