Cisco Systems posted its earnings after the close on Wednesday 13 May, raised its full-year sales forecast, and announced plans to cut thousands of jobs in order to concentrate resources on the artificial intelligence market. The market’s response was a 16–22% surge in pre-market trading that lifted network-equipment peers alongside it. Meanwhile Nvidia, the defining stock of this cycle, was on course for its sixth consecutive daily gain heading into Thursday’s session, having advanced 1.9% in pre-market trading. The Nasdaq 100 set its third record close in a single week. All of this took place against a backdrop of the hottest producer price inflation since 2022, a 30-year Treasury yield above 5%, and an unresolved conflict that has effectively closed the world’s most important oil shipping lane.

The divergence between the macro environment and the performance of large-cap technology stocks is one of the defining features of markets in 2026. It is not simply that investors are ignoring the bad news — it is that they have concluded, at least for now, that AI-driven earnings growth provides sufficient insulation against the headwinds. The question the data is beginning to raise is whether that conclusion will hold.

The Earnings Story Underpinning the Rally

The Cisco result matters because it is not a pure-play AI stock. It is a mature network infrastructure business — routers, switches, enterprise software — that the market had been treating with caution amid concerns about AI disruption to traditional IT spending. Wednesday’s numbers and guidance reframed that narrative: Cisco is not being disrupted by AI, it is becoming an enabler of it. The company’s decision to announce job cuts alongside the raised sales forecast signals a deliberate pivot toward higher-growth AI-adjacent businesses, including networking for data centres and AI factory infrastructure. Investors rewarded the strategic clarity as much as the numbers.

Nvidia’s own earnings are not due until 20 May, but the setup is unusually visible. Analyst consensus, according to Charles Schwab, expects earnings per share of $1.76 for the first quarter — up 116.9% year-on-year — on revenues of approximately $78.5 billion, a 78.2% annual increase. The company has nearly 90% market share in AI accelerators and captures over 40% of AI data centre spending, according to recent analysis. Its investment strategy has also become a story in its own right: Nvidia has committed more than $40 billion in equity investments in 2026 alone, across data centre operators, component makers and AI cloud businesses, as it moves from chipmaker to ecosystem architect.

Beyond Nvidia and Cisco, the broader earnings picture from large-cap technology has consistently surprised to the upside. Amazon, Microsoft, Meta and Alphabet are collectively expected to spend approximately $700 billion on AI infrastructure in 2026 as they expand their AI services. This level of capital expenditure flows through to semiconductor manufacturers and the component supply chain, creating a demand base that the AI investment cycle is generating independently of the macroeconomic conditions affecting consumer and industrial sectors.

Why the Market Keeps Bidding Technology Higher

Three factors are sustaining the rally. The first is earnings momentum. The AI infrastructure cycle is generating genuine, measurable revenue and profit growth at the companies most directly exposed to it. This is not a speculative expansion of multiples — it is a fundamental repricing driven by delivered earnings that continue to exceed expectations. When growth is as rapid as Nvidia’s — earnings per share up over 100% year-on-year — even a market in which the risk-free rate has moved significantly higher can still justify elevated valuations if the growth rate is sufficient to compensate.

The second factor is geopolitical. Nvidia’s chief executive Jensen Huang joined President Trump’s business delegation to China this week alongside the chief executives of Tesla and Apple. The implicit signal — that US technology companies retain strategic access to the world’s second-largest economy even amid broader geopolitical tensions — provided a catalyst for additional buying. The market read it as a positive development for the AI export pipeline, at a moment when there had been concern about semiconductor restrictions tightening further.

The third factor is rotation within equities rather than rotation out of them. When bond yields rise and investors become more cautious about duration risk, the natural adjustment within equity markets is to prefer companies with near-term earnings visibility over those whose value is more heavily weighted toward distant future cash flows. The largest AI infrastructure names — companies with contracted revenues, strong balance sheets and accelerating near-term earnings — fit that description more readily than speculative growth stocks. The rally is not blind to the macro environment; it is, to some degree, a product of it.

Where the Risks Sit

The risks to this thesis are real, even if the market has chosen not to price them aggressively. The most immediate is the rate environment. A 30-year yield above 5% is not, in isolation, a crisis for equity markets — but it becomes more consequential if it continues to rise, or if the Federal Reserve moves from holding rates to raising them. At that point, the discount rate argument reasserts itself more forcefully, and the high multiples in the semiconductor sector become harder to sustain. Nvidia currently trades at approximately 45 times adjusted earnings — below its five-year median but still elevated by historical standards, and dependent on continued earnings growth to justify.

The second risk is concentration. The Nasdaq 100’s three-record-close week has been driven by a narrow set of names. The broader market picture is less uniform: within the S&P 500’s recent advances, the majority of constituent stocks have been declining even as the index itself moved higher, carried by the weight of its largest components. This kind of market leadership that narrows rather than broadens is, historically, a late-cycle characteristic rather than a sign of durable health.

There is also a technical dimension worth noting. TrendForce estimates that GPU-based AI servers will account for 69.7% of shipments in 2026, with custom application-specific integrated circuits rising to 27.8%. Nvidia’s dominance in AI accelerators remains substantial, but the trend line is clear: the incumbents of the hyperscaler ecosystem are building proprietary silicon to reduce their dependence on external chip suppliers. Nvidia’s competitive position is strong. It is not impregnable.

The next significant catalyst is Nvidia’s own first-quarter earnings report, due 20 May. Analyst expectations are demanding — earnings per share up over 116% year-on-year — and the stock’s run into the print means any disappointment, or any guidance that falls short of the most optimistic scenarios, will be punished swiftly. A strong result and confident forward guidance would, conversely, provide fresh validation for the AI thesis and likely carry the broader sector higher. The Cisco result and the momentum in semiconductor names heading into the report suggest the market is positioned for the optimistic outcome. Whether the fundamentals deliver it is the question that will define the next phase of this rally.