CNBC’s Jim Cramer on Tuesday laid out a simple framework for Wall Street’s current approach to artificial intelligence trading.
“Wall Street is currently rewarding tech companies with products that are in high demand and punishing their customers,” the “Mad Money” host said.
The shift is done as follows “Magnificent Seven” Investors questioned whether the group’s huge AI investments would ultimately generate enough revenue and free cash flow to justify their decisions, resulting in a total market capitalization loss of around $2.3 trillion during June. The Mag 7 consists of: appleGoogle’s parent company alphabet, Amazon, microsoft, Meta, Nvidia and tesla.
The biggest spenders on AI data centers within the group are Amazon, Alphabet, Microsoft, and Meta. Now, these so-called hyperscalers have become victims of their own AI ambitions, Kramer said. Kramer said the companies have the wherewithal to continue pouring billions into AI, but demand for computing infrastructure is outstripping supply, driving up the cost of critical components such as memory chips and networking equipment. According to Kramer, this dynamic has rewarded the companies selling the picks and shovels of the AI boom, rather than those bearing the costs.
“The ones making the most money are the exact opposite of the Magnificent Seven,” he says. “They’re making products that are in short supply while demand is off the charts.”
While Nvidia fits the bill as a major supplier of AI computing, Cramer said the company’s stock has fallen into the laggard camp largely due to concerns about competition from custom chips.
Kramer points to memory chip makers micron and sandiskwith intel, marvel technologyand AMDas some of Q2’s biggest winners. He said the imbalance between supply and demand was driving strong profit growth and a steady stream of analyst promotions and price target increases across the group.
Among that group, Cramer named Intel as his new favorite stock. He credited CEO Lip Vu Tan with the chipmaker’s turnaround and said Intel was well-positioned to benefit from growing demand for CPUs, advanced chip packaging and domestic semiconductor manufacturing. Cramer’s Charitable Trust, a portfolio managed by CNBC’s investment club, owns Intel stock.
“This is a national treasure,” he said.
Kramer said the club will continue to own six of the Mag7 companies (with the exception of Tesla), but believes its suppliers will continue to benefit as long as demand for AI infrastructure exceeds supply.
“Some may think that’s unfair…but the market has spoken, and we don’t know if the market will learn another word in the next quarter, let alone the rest of this year,” he said.
