Not all technology companies will lose money from a slowdown in data center construction. In fact, according to Jim Cramer, that may be exactly what Amazon needs moving forward. “If it’s slower, that’s an advantage for the incumbents. That’s why I buy Amazon,” Jim told CNBC on Monday morning. Since last week’s midterm elections, divisions in the artificial intelligence industry have become increasingly apparent, with growing opposition to new projects raising concerns about future infrastructure spending. Amazon shares rose 7% after the election, including intraday gains on Monday. Other cloud incumbents, including Microsoft and Google’s parent company Alphabet, are also solidly higher. Meanwhile, semiconductor and neocloud stocks suffered sharp declines, including Monday’s intraday rebound, with Micron down 14.1%, SanDisk down 21.2% and Coreweave down 8.9%. The strength of hyperscalers is helping fuel a broad-based tech recovery following last week’s sharp selloff. Despite weakness in Nvidia and other chip makers, the Nasdaq rose a combined 3.3% on Friday and Monday, reversing much of Thursday’s 5.5% decline. “I think Amazon’s move is very correct,” Jim said. “We were talking about $300.” That would be nearly 10% upside from current levels. The recent rally marks a turnaround for Amazon, which has been in the doldrums over the past few months as investors grew weary of big AI investments. The forced lifting of situational awareness and an encouraging second-quarter earnings report led to a brief rally in stock prices in late July and August. However, after closing at $284 per share on August 3, the stock price fell more than 15% by the end of October, ending the month at around $240. Cramer argued that a development slowdown could benefit incumbent cloud providers, which already operate large data center networks and may have the corporate clout needed to overcome new bureaucratic hurdles. He likened the situation to a yellow flag in an F1 race. “Everyone has to go slower and no one is allowed to overtake,” he said. “If that happens, it’s Microsoft and Amazon wins.”Even if new data centers become harder to build, the demand for AI computing power will not go away. Unlike smaller neo-cloud providers that rely on continuous expansion for growth, Amazon and Microsoft already have large infrastructure networks in place and are positioned to capture a larger share of demand as it becomes difficult to bring new capacity online. Jim also said he likes that Amazon is relying less on neo-cloud providers to have additional capacity to meet demand. Slowing the pace of capacity expansion could ease the pressure on hyperscalers to continue accelerating capital spending, potentially restoring free cash flow and improving returns on existing infrastructure investments. For investors, this means established hyperscalers are better positioned to weather an economic slowdown than companies whose growth depends directly on building new data centers. (Jim Cramer’s charitable trusts are long AMZN, MSFT, MU, NVDA. 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.
