AI Trade Shift: Focus on Undervalued Stocks
The latest quarterly results from Cisco and Applied Materials have sent a clear signal to investors about the AI trade in 2026. Despite delivering exceptional numbers, both stocks are lower than their pre-earnings levels.
Cisco's Q4 FY2026 revenue of $17.3 billion beat the estimate by nearly $500 million, with non-GAAP EPS of $1.22 exceeding expectations. The company raised its FY27 guidance by billions above analyst estimates. However, Cisco's stock fell 4.1% to $118.84 in after-hours trading and is now trading at $112.26.
Applied Materials' Q3 FY2026 revenue of $9.12 billion was a record high, beating the consensus estimate. Non-GAAP EPS of $3.50 also set a new record, up 41% year over year. Despite this, the stock fell to $479.15, below both its after-hours reaction level and pre-earnings trading level.
The market's reaction suggests that investors are no longer just looking for companies benefiting from AI, but rather those where AI benefits have not yet been priced into the share price.