The hunt for the next AI winners has defined a week of stock market holiday shortening
Wall Street started the third quarter with mixed results after a blockbuster first half for stocks. The first two days of Q3 and the second half of the year saw the S&P 500 flat, while the Dow Jones Industrial Average and Nasdaq moved in different directions. The Dow ended a holiday-shortened week with a record close on Thursday as a soft jobs report reduced the likelihood of a Federal Reserve interest rate hike. The Nasdaq lost back-to-back, with chip stocks as measured by the PHHLX Semiconductor Index falling 6.3% on Wednesday and 5.4% on Thursday. Despite a lackluster start to July marked by a shift in a new group of AI gainers, all three stock options were higher for the week. While the market is closed on Friday in celebration of the Fourth of July, talk about fireworks. The first six months of 2026 were explosive for stocks, with the S&P 500 up 9.6% and the Nasdaq up more than 12%. The Dow delivered its best first-half performance since 2021, rising 8.9%. The small-cap Russell 2000 is up nearly 22% for its strongest start to a year since 1991. Here’s a closer look at what drove the market this week, including a review of the four trade alerts we sent out to members. AI boosts Cybersecurity stocks Cybersecurity stocks strengthened their position as big winners from the development of artificial intelligence this week – a major reversal from the beginning of the year, when the market feared AI disruption. The group came together after the Wall Street Journal reported over the weekend that China’s AI models are nearly as capable as the best US platforms in identifying vulnerabilities through code. Instead of seeing that as a negative for the industry, investors see it as another reason companies will need to spend more on cybersecurity. Jim repeatedly says that as AI gets better at uncovering software flaws, businesses will need more advanced tools to identify, patch, and protect against those vulnerabilities before hackers can exploit them. Club stocks Palo Alto Networks and CrowdStrike led the advance, with both reaching highs during the week. We took advantage of Palo Alto’s sharp rally to reduce some of our positions on Tuesday, closing gains of nearly 150%, while maintaining our long-term belief in the company. The AI theme got another boost on Wednesday after the US lifted export restrictions on Anthropic’s Claude Fable 5 and Mythos 5 models. By week’s end, Palo Alto and CrowdStrike had gained 14.5% and 10.7%, respectively. Meta looks to the cloud Meta Platforms has given investors reason to believe that its big use of AI could eventually turn into a profitable investment. Shares of the parent of Facebook and Instagram jumped more than 8% on Wednesday after news that the company is preparing to launch a cloud infrastructure business that will sell AI computing power and AI modeling to foreign customers. Meta has faced growing concerns about its heavy spending on servers, data centers, and AI infrastructure. Until now, the company has largely defended that use by targeting the development of its advertising business. That wasn’t enough for investors worried about free cash flow and Meta’s reliance on a critical, economically sensitive revenue stream. That’s why Jim has been increasing his calls for Meta to start a cloud business , predicting that the struggling stock will rise in response. Both happen. Jim said the cloud business will give Meta another way to monetize the computing it’s building, putting it in competition with Amazon Web Services, Microsoft Azure, and Alphabet’s Google Cloud. Of course, questions remain. Meta still needs to prove whether it wants to lease raw computing capacity or build a full-service cloud platform. The latter can be very difficult and time-consuming. Either way, the move showed Wall Street that Meta is listening to investor concerns and looking at ways to make its AI infrastructure work harder for shareholders. Portfolio repositioning We made several significant changes to the CNBC Investing Club portfolio this week, continuing to invest capital in our most bullish views while reaping the benefits of stocks that have outperformed. On the retail side, we exited our position on Nike after concluding that the turnaround may take longer than we originally anticipated. Although management has made progress in cleaning up inventory and improving margins, we no longer believe that the return on investment warrants tying up cash for several more months. We chose to realize the loss and use that money in companies with clean growth stories. We also decided on positions that worked surprisingly well. In addition to the Palo Alto selloff mentioned above, we took a similar approach to Corning as the stock extended its impressive rally to more than 200% year to date. Corning remains one of our favorite plays for AI infrastructure, but our discipline is to cut positions when they get too big or converge faster than we can justify. The proceeds from those sales have allowed us to continue to build two positions that we believe have attractive upside. We added to both FedEx and FedEx Freight that were recently thrown in, using almost half of the proceeds from our Nike sales. We continue to believe that investors are not seeing growth in FedEx’s parcel business, where management is benefiting from strong demand in healthcare, aerospace, automotive and data center related AI. At the same time, FedEx Freight has just begun its life as a private company, giving management greater flexibility to improve margins as the freight cycle shows the first signs of recovery. Goldman Sachs reiterated that view this week, initiating coverage with a buy rating and a $186 price target. (See here for a full list of stocks from 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 stock in his charity portfolio. When Jim talks about a stock on CNBC TV, he waits 72 hours after issuing a trade warning before making a trade. THE PRIVATE INFORMATION OF THE BURNING CLUB IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AND OUR PRIVACY POLICY. NO LEGAL LIABILITY OR OBLIGATION EXISTS, OR IS CREATED, BY YOUR ACCEPTANCE OF ANY INFORMATION PROVIDED BY CONTACTING THE INVESTMENT CLUB. 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