AI stocks staged a recovery on Monday after a bruising previous week on Wall Street, giving investors a chance to reconsider their positions in one of the market’s most closely watched sectors.
The tech-heavy Nasdaq Composite gained 1.1%, recovering some ground after losing 4.5% last week. Semiconductor stocks also bounced back, with the Philadelphia Semiconductor Index rising 1.6% and ending an eight-session losing streak, its longest since 2008.
However, CNBC host Jim Cramer urged investors not to rush into buying beaten-down artificial intelligence stocks, saying the latest rebound was not enough to establish that the sector’s troubles were over.
In his Sunday column for Investing Club subscribers, Cramer, the host of Mad Money, said investors needed more evidence before increasing their exposure to AI companies, particularly those involved in building data centers.
“Even after today’s bounce, I think it’s too soon to say the coast is clear and it’s safe to dive back into the hardest hit AI data center stocks,” he wrote.
Cramer identifies four hurdles for AI stocks
Cramer outlined four developments he wants to see before becoming aggressively bullish on the sector: improving stock charts, earnings from major technology companies, greater clarity following the US midterm elections and progress toward an initial public offering by Anthropic.
Expert View
“I just don’t think it’s safe to be aggressively bullish on the group until the charts improve, the hyperscalers report, the election’s in the rearview mirror, and Anthropic manages to come public. That’s what you need to keep your eyes on before circling back to this newly beaten down group.”
Despite his near-term caution, Cramer said he remained a long-term believer in the AI investment story.
One technical signal he wants to see is the Nasdaq Composite and Nasdaq-100 regain their 50-day moving averages, which market participants use to assess the direction of a stock or index’s recent price trend.
A brutal Friday selloff had pushed the Nasdaq Composite and the Nasdaq 100 below their 50-day moving averages.
A sustained recovery above those levels would offer a further indication of improving market momentum after the recent sell-off.
Big Tech earnings to test AI spending plans
The next round of earnings reports will be another important test for the sector. Cramer wants evidence that major technology companies remain committed to their AI infrastructure spending, despite growing questions about how quickly those investments will generate profits.
SpaceX and Meta Platforms are expected to report this week, followed by Alphabet, Microsoft and Amazon next week.
The results and management commentary could help investors assess whether companies intend to maintain their spending plans or become more cautious about allocating capital to data centers, advanced chips and computing infrastructure.
Cramer said investors need to see that AI investments can ultimately generate sustainable profits, rather than simply drive demand for more computing capacity.
“We need to see, at the very end of the spending chain, that this can be a sustainably profitable business that’s worth investing in,” he said. “That’s what Anthropic’s IPO represents.”
Anthropic IPO could offer a reality check
Anthropic’s potential stock market debut is emerging as another important event for investors trying to determine whether AI valuations can withstand closer scrutiny.
The company, which develops the Claude family of AI models, is reportedly facing an early test of investor appetite ahead of a potential November listing. Some prospective and existing investors are considering a valuation of around $1.5 trillion, below the roughly $2 trillion figure previously anticipated.
The eventual valuation could provide investors with another reference point for assessing the financial prospects of major AI developers and whether public-market buyers are willing to support the sector’s current expectations.
The listing is particularly relevant to Cramer’s argument because it could offer a clearer view of how investors value an AI business as it approaches the public markets.
Elections add another source of uncertainty
Cramer also wants investors to look beyond earnings and market charts to the outcome of the November 3 US midterm elections.
He warned that the result could initially trigger additional selling in AI stocks. However, he also said that greater political certainty afterward could help the sector establish a bottom. With data centers increasingly becoming a political issue, the completion of elections is likely to ease pressure off AI companies, Cramer predicts.
The coming days could provide some of that evidence, as major technology companies report results and investors assess whether the recovery in AI stocks can extend beyond a short-term bounce.
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