We're adding a new name to the Bullpen. It's a cheap way to play the AI boom

CNBC

5 days ago

Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets: The S & P 500 was up around 0.7% in afternoon trading, in what's been a volatile session filled with geopolitical headlines. Shortly after the opening bell, stocks traded modestly higher, brushing off concerns about rising tensions in the Middle East after the U.S. over the weekend bombed Iranian nuclear sites. Despite concerns that we'd see a big market sell-off and surge in oil prices following the U.S. attacks, the rally was broad based. But shortly after noon ET, the market began to reverse course. Gains faded amid renewed concerns about how Iran might respond. There were initial reports that Iran attacked a U.S. military base in Qatar . But what made the intraday pullback particularly interesting was that it came as oil prices dropped significantly — a move that would typically suggest de-escalation, not rising risk. However, as more became known about the Iranian attack — most notably that the missiles were intercepted and there were no reported deaths — oil accelerated to the downside and stocks mounted their rally. The market is viewing Iran's response as not as bad as feared. Ultimately, the market volatility underscores how fluid and unpredictable the situation in the Middle East remains— the kind of uncertainty markets dislike in the short-term even though the long-term impact may be limited. Outside of geopolitics, interest rates fell after Federal Reserve Governor Michelle Bowman said she would be in favor of lowering interest rates at the Fed's next meeting in July if "inflation pressures remain contained." This is the second Fed member to voice the possibility of rate cuts at the next policy meeting. Later Monday, Chicago Fed President Austan Goolsbee said at a speech in Milwaukee that rate cuts are appropriate if the tariffs do not lead to a bump in inflation. The Fed cutting rates by a quarter percentage point in July is currently an out-of-consensus view, according to CME Fed Watch . As of 2:45 p.m. ET, there was only a 22.7% probability of a 25-basis point rate cut at the July 30 meeting. Bullpen update: We are officially adding Cisco Systems , the networking equipment powerhouse that has made big strides to improve its artificial intelligence and cybersecurity offerings, to our Bullpen watchlist. Cisco fits into the AI puzzle through its networking equipment that connects all of the powerful computers at the heart of the AI data centers. As increasingly powerful computing equipment is being created, new, sophisticated networking equipment is required to make it all work. Cisco shares popped nearly 5% in mid-May after the company reported strong quarterly results and issued better-than-expected guidance. The company saw a huge surge in orders — up 20% year over year, or 9% excluding the Splunk acquisition, and reached its target of $1 billion in AI infrastructure orders from webscale (also known as hyperscale) customers one quarter early. Better serving the cloud-computing market has been a big strategic focus for Cisco, in a bid to counter the momentum of rival Arista Networks . Historically, Cisco had been known for serving enterprise customers. Since earnings, the stock has continued to drift higher thanks to positive news around its AI infrastructure business. Two weeks ago, Cisco announced a number of new innovations for AI data centers that the company says will allow it to deliver "secure, scalable AI infrastructure to drive growth and enable new use cases." The stock has also benefited from Deutsche Bank upgrading Cisco to a buy rating on June 15. In explaining their upgrade, analysts said they have improved visibility toward durable mid-single-digit growth thanks to AI tailwinds — from both webscale and sovereign AI deployments. Cisco's valuation also is attractive, Deutsche Bank argued at the time. The firm noted that Cisco was trading at only 15 times estimated 2026 earnings per share, which it said represented at 25% discount to the S & P 500. Cisco shares have had a great 2025, rallying about 13%, outperforming the S & P 500's more modest gain of about 2%. Although the stock currently trades at its new 52-week high and we typically don't like to chase stocks after a big move, this one has caught our attention as an inexpensive way to play the AI buildout. We also like the company's ongoing transition toward subscription software revenue, which provide higher margin revenues, and its strong track record of returning cash to shareholders. In the most recent quarter, Cisco paid out approximately $3.1 billion in dividends and buybacks. Up next: After the closing bell, we'll see the quarterly results from the homebuilder KB Home . Carnival reports before the opening bell on Tuesday, offering a checkup on discretionary travel spending. On the economic data side Tuesday, we'll get the FHFA House Price Index, the Richmond Fed's manufacturing index, and the Conference Board's monthly look at consumer confidence. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. 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