Jim Cramer discussed the recent sell-off in AI stocks, attributing it to uncertainty over the future of data center build-outs. This uncertainty has made it challenging to value companies in the AI sector, leading to a broad decline in stock prices.
For instance, the iShares Semiconductor ETF (SOXX) dropped 3% on Wednesday and another 10% on Thursday, while companies like GE Vernova and Sandisk saw declines of 7% and 22%, respectively. Investors are worried that regulatory challenges could hinder the rapid expansion of data centers, which is critical for supporting the growth forecasts of chipmakers.
Cramer used Nvidia as an example, noting that while it appears undervalued at 12 times next year's earnings with a 70% growth rate, this valuation relies heavily on sustained demand for data centers. He also expressed concerns about Micron's revenue visibility through long-term contracts, questioning their reliability if customers face financial difficulties.
Advanced Micro Devices was praised for its strong earnings, but Cramer cautioned that its current stock price of $404 may be too high compared to its historical price of $188 in March. He concluded that until there is clarity on regulatory impacts on data center construction, even strong earnings may not justify the current valuations of AI stocks