The hunt for AI's next winners defined the stock market's holiday-shortened week
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The first two days of Q3 and the second half of the year saw the S & P 500 pretty much flat, while the Dow Jones Industrial Average and the Nasdaq moved in opposite directions. The Dow finished the holiday-shortened week with a record close Thursday as a soft jobs report reduced chances of a Federal Reserve interest rate hike. The Nasdaq suffered back-to-back losses, with chip stocks as measured by the PHLX Semiconductor Index sinking 6.3% on Wednesday and 5.4% on Thursday. Despite the lackluster July start marked by a rotation into a new group of AI beneficiaries, all three stock measures were higher for the week. While the market is closed Friday in observance 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%. Small-cap Russell 2000 surged 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 to members. AI lifts cyber stocks Cybersecurity stocks solidified their status as big winners from the artificial intelligence boom this week —a big reversal from the beginning of the year, when the market feared AI disruption. The group rallied after The Wall Street Journal reported over the weekend that Chinese AI models have become nearly as capable as the leading U.S. platforms at identifying vulnerabilities in code. Rather than viewing that as a negative for the sector, investors saw it as another reason that companies will need to spend more on cybersecurity. Jim has repeatedly said that as AI becomes better at uncovering software flaws, businesses will need increasingly sophisticated tools to identify, patch, and defend against those vulnerabilities before hackers can exploit them. Club stocks Palo Alto Networks and CrowdStrike led the advance, with both reaching all-time highs during the week. We took advantage of Palo Alto's sharp rally to trim some of our position Tuesday , locking in gains of nearly 150%, while maintaining our long-term conviction in the company. The AI theme received another boost Wednesday after the U.S. 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 gave investors a reason to believe that its enormous AI spending could finally turn into meaningful revenue . Shares of the Facebook and Instagram parent jumped more than 8% on Wednesday after news that the company is preparing to launch a cloud infrastructure business that would sell excess AI computing power and AI models to outside customers. Meta has faced growing concerns about its massive capital spending on servers, data centers, and AI infrastructure. Until now, the company has mostly defended that spending by pointing to improvements in its advertising business. That was not enough for investors worried about free cash flow and Meta's reliance on a narrow, economically sensitive revenue stream. That's why Jim had been stepping up his calls for Meta to start a cloud business , predicting the struggling stock would soar in response. Both happened. Jim said that a cloud business would give Meta another way to monetize the compute it is already building, putting it in competition with Amazon Web Services, Microsoft Azure, and Alphabet's Google Cloud. To be sure, questions remain. Meta still needs to prove whether it wants to rent out raw computing capacity or build a full-service cloud platform. The latter would be much harder and take longer. Either way, the move showed Wall Street that Meta is listening to investor concerns and looking for ways to make its AI infrastructure work harder for shareholders. Portfolio repositioning We made several notable changes to the CNBC Investing Club portfolio this week, continuing to redeploy capital into our highest-conviction ideas while locking in gains in stocks that have run well ahead. On the sell side, we exited our position in Nike after concluding the turnaround is likely to take longer than we originally anticipated. While management has made progress cleaning up inventory and improving margins, we no longer believe the recovery justifies tying up capital for several more months. We chose to realize the loss and put that money to work in companies with cleaner growth stories. We also trimmed positions that have dramatically outperformed. In addition to the aforementioned Palo Alto sales, we took a similar approach with Corning as the stock extended its remarkable rally to more than 200% year to date. Corning remains one of our favorite AI infrastructure plays, but our discipline is to trim positions when they become oversized or rally faster than we can justify fundamentally. The proceeds from those sales allowed us to further build two positions that we believe have attractive upside. We added to both FedEx and the recently spun-off FedEx Freight , using roughly half the cash generated from our Nike sale. We continue to believe investors are underappreciating FedEx's improving parcel business, where management is benefiting from stronger demand in health care, aerospace, automotive and AI-related data center logistics. At the same time, FedEx Freight is just beginning its life as a standalone company, giving management greater flexibility to improve margins as the freight cycle shows early signs of recovery. Goldman Sachs reinforced that view this week, initiating coverage with a buy rating and a $186 price target. (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. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED. 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