Stocks hit new highs early last week, but the new volatility in artificial intelligence trading showed just how fickle investors are in this market. After Thursday’s terrible trade in tech stocks, the wheels nearly came off the bus. That was followed by a modest rebound on Friday, which proved to be enough to keep the stock in good shape this week. The S&P 500 hit a new intraday high on Tuesday, posting a 1.2% gain for the week after closing above 7,800 for the first time in history. The Nasdaq rose 0.6% for the week. The tech stock ratio also closed at an all-time high on Tuesday. To balance our exposure to AI, we injected more cash on Thursday and added three club names: Kimberly-Clark, FedEx, and Bank of New York. Rising oil prices and interest rates continue to create uncertainty, but rather than deploying all our cash at once, we are selectively acquiring high-quality companies at attractive valuations. Here’s a closer look at three trends that drove market action last week. SpaceX gives investors more reason to buy the bullish case SpaceX gave investors a lot of excitement last week. The Financial Times reported late Tuesday that Elon Musk’s Rocket AI company is looking to raise $40 billion to buy more Nvidia chips and expand its AI computing business, which lends power to customers such as Anthropic and Alphabet’s Google. For Jim, the potential debt hike is a win for both companies, reinforcing the idea that Nvidia’s customers are generating strong returns from their AI investments. “Why not? Mr. Musk could monetize these chips right away,” Jim said. “At this pace, SpaceX could become Nvidia’s largest customer, which is great news for both parties.” On Thursday night, SpaceX announced a deal to acquire a nationwide spectrum portfolio that could position its Starlink service as a stronger competitor to traditional U.S. wireless carriers. This spectrum will help address a major technical hurdle in Starlink’s mobile ambitions and will ultimately allow SpaceX to combine satellite coverage with a ground-based network. The news sent telecom stocks tumbling on Friday and opened up new growth opportunities for SpaceX beyond rockets, satellites and AI infrastructure. Wall Street is paying attention. Goldman Sachs on Tuesday raised its price target on SpaceX to $230 from $220, reinforcing Jim’s view that the company’s ambitious growth plans are becoming more concrete. Barclays began its coverage of SpaceX in a memo released late Thursday, writing that SpaceX is “the name to own in space due to its complete dominance in each area in which it operates.” Jim said he still doesn’t feel SpaceX is a good fit for the club’s portfolio, but the development suggests Musk’s vision could become a reality sooner than investors expected. OpenAI disrupts the AI industry and reinforces a key investment lesson that sent AI stocks plummeting last week after a Financial Times report raised questions about OpenAI’s growth. AI stocks tumbled on Thursday after the report suggested that OpenAI’s annual revenue at the end of September was about $20 billion below what it had previously indicated. The club that owns Broadcom is down 4.4% (although it ended the week higher). On Thursday, stocks that had been underperforming outside of AI trading rebounded as U.S. Treasury yields fell. AI trading rebounded on Friday after people told Bloomberg that OpenAI expects to generate at least $70 billion in annualized revenue by the end of the year. The reversal highlighted how quickly sentiment toward AI stocks can change, even as underlying demand for computing power remains strong. Jim said the real problem is that people think of AI as a trade rather than an investment. The bigger lesson for us is the importance of diversification. “If we had only owned artificial intelligence stocks, it would have been a nightmare (Thursday),” Jim said. The danger of a concentrated portfolio is that large losses can cause investors to panic, sell their holdings for cash, and miss out on any subsequent recovery. A diversified portfolio cushions losses when hitting a particular investment theme and makes it easier to continue investing. Consumers support Starbucks’ turnaround New consumer data provided encouraging evidence that Starbucks’ turnaround is indeed taking hold. HundredX says Starbucks is the only chain in a group that also includes Dunkin’, Dutch Bros. and Seven Brew that has seen an improvement in customers’ willingness to spend in recent months. Feedback from 29,000 customers also shows that Starbucks has an advantage over competitors in taste, speed, quality, and brand trust. The findings are especially encouraging given concerns that fast-growing beverage chains like Dutch Bros. and Seven Brew could threaten Starbucks’ long-term growth. It also suggests that underlying business is improving, even as concerns about consumer spending weigh on restaurant stocks. However, another development presents complications. The Financial Times reported that Starbucks is considering buying Chipotle, raising questions about the potential deal. This is interesting. Because Brian Nicol led a successful turnaround as CEO of Chipotle before leaving to try to recreate that magic as CEO of Starbucks. We are not confident that a deal will happen. Jim said Thursday that he was considering buying more shares after the stock price drop. He said in a Friday morning meeting that a further drop to $90, coupled with signs that Starbucks won’t pursue Chipotle, could present an attractive buying opportunity. He reminded members that the club’s trading was restricted during a discussion on CNBC on Friday. (Jim Cramer’s charitable trusts are long NVDA, AVGO, SBUX, KMB, FDX, BNY. See here for a complete list of 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.
