An avalanche of selling crushed the stock market on Friday, a dramatic reversal from record highs earlier in the week. Chip stocks plunged in the final trading session of last week. There has been a soft spot in the tech industry since Broadcom’s disappointing performance. But Friday’s decline was the next level after strong jobs data dashed hopes of a Federal Reserve rate cut and sent the 10-year Treasury yield soaring above 4.5%. The S&P 500 and Nasdaq fell 2.6% and 4.2%, respectively, on Friday, making their record highs at Tuesday’s close seem like a distant memory. A massive rotation from technology to lagging sectors such as healthcare and finance has produced some winners for the company. For the week, Eli Lilly rose 2.4% and Wells Fargo rose 5.7%. As it turns out, the weekly declines in the S&P 500 and Nasdaq mirrored Friday’s declines. The S&P 500 index ended its nine-week winning streak. Here’s a closer look at the factors that drove last week’s market moves. First, sky-high earnings expectations for Broadcom and two other Club Tech companies were not met. Hot stocks turn profits It all started on Wednesday when Palo Alto Networks stock fell despite a solid beat-and-raise quarter the night before. The stock made headlines after hitting a new all-time high on Monday. Instead, sellers pushed the stock down 5.6% after management reiterated its long-term financial outlook. It didn’t change our view of Palo Alto. We’re pleased to see management finally showing Wall Street that AI can accelerate business. That number is huge considering how badly cyber stocks sold off earlier this year after Jim Cramer’s long-unfounded fears of disruption. Palo Alto fell 3.4% for the week. A similar story unfolded Wednesday night when CrowdStrike reported better-than-expected earnings and forward guidance. The stock fell more than 10% during trading Thursday, but closed less than 4%. Like Palo Alto, CrowdStrike’s weakness may lie in its failure to meet lofty expectations at a stock price near all-time highs. We were not disappointed. CrowdStrike has also shown that AI can benefit businesses. CEO George Kurtz himself said so on a conference call. Unfortunately, CrowdStrike sold off even more on Friday, dropping more than 8% for the week. But Broadcom fell the most, with its stock dropping 12.6% after Thursday’s results. The price movement here may be a little more understandable, as it’s not just a failure to issue stronger guidance. Sales for the reported quarter were also lower than expected. The AI-related portion of the company’s business performed well. We were also encouraged by management’s expectation that AI semiconductor revenues will continue to grow in fiscal 2028. It wasn’t enough to save inventory. The selling continued on Friday, with Broadcom falling 13.7%, making it the worst stock of the week. Our newest chip stock, Intel, had weekly losses tied with Broadcom’s. Intel is down 13.5% this week. We initiated a position on Wednesday and bought more shares heading into Friday’s decline. We entered Intel because of its strong central processing unit (CPU) business, which is well-positioned for the age of agent-based AI. Data center server racks have a narrowing ratio of CPUs to GPUs. GPUs are graphics processing units, and Nvidia dominates the market. Kingmaker Nvidia Nvidia fell an even more modest 2.9% this week. At the influential Computex conference in Taiwan on Monday, CEO Jensen Huang announced that Nvidia will enter the personal computer market with chips based on Arm Holdings’ architecture. Shares in Arm, which is also the club’s name, soared 15.7% on the news. However, it was not immune to the effects of the sell-off in semiconductor stocks. Arm stock fell 3% this week. Arm is an incredible position for us. The stock is up 213% since the beginning of the year. Amidst the carnage, there was one big winner in chip stocks. Marvell Technology stock rose more than 28% last week. Jensen predicted Tuesday that Marvel would become “the next trillion-dollar company.” Before these comments caused the stock to skyrocket, Marvell’s market capitalization was nearly $200 billion. Jim said the sharp rise in Marvel stock is concerning. “These are big moves and they’re not based on anything other than what one person is saying.” Still, Jim remains bullish on Marvel, which is not a club stock. IPOs and Stock Sales Another big story this week, and one that will carry over into next week and beyond, is that three big IPOs are expected to bring a ton of stock to the market. The first is SpaceX, which is scheduled to begin trading this Friday. Elon Musk’s satellite, rocket and AI company announced plans last Wednesday to sell 555.6 million shares at a fixed price of $135 each, raising about $75 billion for a market cap of $1.8 trillion. SpaceX is just one of several high-profile IPOs. Anthropic, known for its large family of language models called Claude, secretly filed its IPO prospectus on Monday. Anthropic recently closed a funding round that valued the startup at $965 billion, so this deal could create a historic stock sale for investors ready to jump into AI. The news puts Anthropic ahead of rival OpenAI, which is preparing plans for a public market listing. The startup was recently valued at $852 billion post-money. Companies don’t just raise money through IPOs. Alphabet last week announced plans to sell $85 billion in stock to free up more funding to build AI. Shares of parent company Google fell nearly 4% on Tuesday and 3% this week on the news. Investors typically do not like companies to sell stock to raise investment funds. This is because it may dilute existing shares. The move raised questions about whether other megacaps would take similar action. Club stock Meta Platforms fell on Friday after the Financial Times reported the company could raise tens of billions of dollars in a stock offering to fund its AI push. The meta has fallen over 6% this week. Jim issued a warning on all of these trades, saying a large increase in stock supply could cause short-term headwinds in the market. A spate of IPOs and stock sales by tech giants could lead to investors selling existing holdings to raise cash to buy other stocks. “Bull markets can be wiped out by economic conditions, interest rates or geopolitical turmoil, but what can most easily lead to a slaughterhouse is a glut of new supply,” he said on Wednesday’s “Mad Money” show. “As with any market, when supply exceeds demand, prices fall quickly.” Jim continued, “I’m worried that the supply of stocks will overwhelm investor demand. Looking at the calendar at the moment, I don’t see how we can finance all these trades without bringing the market down. We have too much capital at once.” (See here for a complete list of Jim Cramer Charitable Trust stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
