Semiconductor and AI-linked stocks tumbled on Tuesday after weeks of relentless gains, a sell-off that CNBC's Jim Cramer said he had been bracing for since the rally began to resemble the final months of the dot-com era.
'Anything could've knocked them down. A feather could have knocked these stocks down,' Cramer said on Squawk on the Street after a Wall Street Journal report that OpenAI had missed internal user growth and revenue targets, which dragged chip stocks lower. 'They are just ridiculous right now,' he added, CNBC reported.
The correction has followed repeated warnings from Cramer that were issued the previous evening. On Monday's Mad Money, the veteran host told viewers the speed of the semiconductor rally had crossed into territory that historically ends badly.
'Lately, we've been seeing parabolic moves all over the market. Those are worrisome,' he said on the 27 April edition, according to CNBC.
Record SOX Streak Draws February 2000 Comparison
The Philadelphia Semiconductor Index had posted 18 straight winning sessions before Tuesday's reversal. No previous streak in the index's history had lasted that long. The SOX climbed more than 47 per cent over those 18 days.
April's gains stood at 37 per cent even after Tuesday's retreat. At that level, the month would rank as the SOX's second-strongest on record. The only month that beat it was February 2000—weeks before technology stocks collapsed.
Among individual names, Advanced Micro Devices, Arista Networks and Marvell Technology had each surged more than 50 per cent since late March. Arm Holdings gained nearly 41 per cent in a single week before shedding over 8 per cent on Monday alone. Cramer's Charitable Trust bought Arm shares early last week at roughly $173 (£131) per share.
'Trim some winners...don't chase the parabolic stuff,' he said on Monday. Cramer has been following his own advice. His Charitable Trust sold Broadcom shares last week for a 375 per cent gain on stock purchased in September 2023.
Cramer's broader concern is that nearly every available dollar flowing into equities has been funnelled into data centre and AI stocks. That has left a split market where chip names keep climbing while most other sectors are unable to attract fresh capital.
'There's not enough money around to sustain all these moves,' he warned.
IPO Pipeline and Megacap Earnings Add Pressure to Chip Trade
Separately on Monday's Mad Money, Cramer warned that a cluster of anticipated public listings from OpenAI, SpaceX, and Anthropic later this year could pull billions in capital away from stocks already trading at stretched valuations. He called it one of the most underappreciated threats facing the market, per CNBC.
'A bull [market] can also be killed by excess supply - too many big IPOs, and it collapses under its own weight,' he said. 'The bull runs on money. It just might run out of money if this trio of IPOs goes through the chute at one time.'
The more immediate test arrives this week. Alphabet, Amazon, Meta, and Microsoft are all scheduled to report earnings, with Apple following shortly after. Cramer wrote in a Sunday column that the rally's fate likely rests on those results.
'If we get through next week with even two of these names being rewarding, then Fourth Industrial Revolution investing will stay in vogue for the duration,' he wrote.
After Tuesday's drop, Cramer said investors who had trimmed during the rally should consider buying back selectively rather than panicking.
'The pros [take] a little out of the stock on each day of the parabolic move,' he said on Tuesday's Mad Money. 'Then, if the stock drops 5-7 per cent from where you first sold, you begin to buy it back.'
Cramer's Charitable Trust, the portfolio used by the CNBC Investing Club, holds shares in Arm Holdings and Broadcom.
