AI stock downturn may continue, but not a bubble, Cramer warns

Concerns over growing opposition to new data center construction following the midterm elections have cast doubt on future AI infrastructure investments, causing significant drops in related company shares. Micron fell by 17%, GE Vernova decreased by 7%, and Sandisk plummeted 22% on Thursday, following losses on Wednesday.

“I wish I could say that today’s flush was the bottom,” Cramer stated, while acknowledging the potential for further declines. He differentiated today’s AI companies from the speculative businesses that failed during the dot-com crash, emphasizing their fundamental differences.

Cramer observed that many technology and semiconductor stocks lack support due to their rapid ascent. He characterized the current decline as “orderly” because these companies are generally profitable, despite inflated stock prices.

The surge in AI stock values was driven by an assumption of continuous, rapid data center construction, according to Cramer. Smaller developers, such as CoreWeave, Iren, and Nebius, are particularly vulnerable due to debt financing for projects now facing potential regulatory hurdles.

“That’s what I am chiefly worried about,” Cramer said. “That’s the real problem. That’s what could really hurt the stock market.” He added that while debt-related issues exist within these “neocloud” companies, they are not severe enough to trigger a broader market collapse.

Cramer suggested a rapid sell-off could be beneficial, allowing the market to correct the excesses of the AI boom more quickly than a drawn-out decline.

“I for one am glad they are ripping the Band-Aid off this market rather than slowing trying to take it off a little bit each day,” he said.

Cramer recommended that investors maintain a healthy cash reserve. He pointed to potential falling interest rates, indications of easing inflation, and the possibility of an end to the Iran war as reasons for future optimism.

“If you have cash you won’t panic,” Cramer concluded. “You won’t be complacent, either. You will be clear-headed and that’s how you will lose less money until things get better. They always do.”