There’s no denying that CrowdStrike and Broadcom’s revenue declines are painful to wake up to Thursday morning. It was also painful to see a similar decline seen at Palo Alto Networks. In fact, Palo Alto stock is currently on a three-session losing streak. In the end, all three companies reported strong quarterly results and outlooks, and Wall Street analysts significantly raised their price targets. So were we. However, all three companies were well-regarded but not “solid” enough to meet the high expectations of an investor base looking for the next Snowflake, Hewlett Packard Enterprise, or Dell. All of that skyrocketed after the guide shattered expectations. What gives? We need to understand these movements in context. Remember back in late May when Snowflake reported its quarter? The data storage and analytics provider’s stock soared more than 36% on May 28, kicking off a bull market for enterprise software and sending buyers flooding into IGV, the tech software ETF. The next day, Dell far exceeded expectations and its stock price soared nearly 33%. Fast forward to Tuesday, and like Dell, HPE is up over 19% on a very strong guidance hike. So what does it bring us? The answer is momentum. Especially when it comes to AI, the market is driven by “animal spirits” more than anything else. In a market like this, it’s important to keep the type of movement seen Thursday morning in context. Think about it. At the closing price on May 27, just before Snowflake reported its quarterly report and just before igniting a bull market in our stock heading into its quarterly release, Palo Alto Networks’ stock price was $248, CrowdStrike’s stock was $645, and Broadcom’s stock was $421, respectively. All three companies closed at record highs this week. Based on Thursday afternoon trading, Palo Alto Networks is up 9.3% since May 27 (based on a stock price of $271), and CrowdStrike is up 7.8% (on a $695 per share basis). Broadcom is down about 1.7% ($414/piece). If you zoom out from a week that is completely meaningless from a long-term investing perspective, you can see that stocks were due for a breather and extended it significantly. PANW CRWD, AVGO YTD Mountain Palo Alto Networks, CrowdStrike, Broadcom YTD CrowdStrike and Palo Alto overshoot can be attributed to Snowflake unleashing IGV. Both companies’ names were destroyed earlier this year over the false belief that AI would harm cybersecurity businesses. Jim had denied the story from the beginning, but this quarter was further proof that he was right. AI is not challenging cyber companies. They are more essential than ever. Rapid recovery also tends to overshoot. For Broadcom, Overshoot returns to hardware companies Dell and HPE to provide a monster guide and hopes that Alphabet’s $85 billion equity raise will lead to more orders for Broadcom. Traders flocked to Broadcom stock, betting on a huge guide that never materialized. Given that traders didn’t get what they were looking for, it makes sense that Broadcom would abandon the hot money-generated move. But we are not traders. That’s why Jim Cramer remained bullish on all three stocks Thursday, saying he’s still willing to buy a dip in Broadcom stock. He advised investors to allow the stock to settle down a bit before buying. We’re not yet ready to act on CrowdStrike and Palo Alto Networks, but the last cuts were in May and April, respectively. He said CrowdStrike could become a buy in the coming days. But the important thing to understand is that these stocks are still up significantly, and Thursday’s price action has nothing to do with deteriorating fundamentals or business issues. In fact, the opposite is true. Their fundamentals and business remain strong. Conclusion This is what happens when expectations and animal spirits push stock prices up too much, too fast, and you’re faced with reality with the bottom line. As members attempt to manage these positions, be careful not to let these one- or two-day movements influence your thinking too much. These stocks have risen significantly since the beginning of the year, despite recent declines. One caveat: There’s a ton of stock coming to market in the form of blockbuster IPOs from SpaceX, Anthropic, and OpenAI, not to mention Alphabet’s big fundraising stock sale. Jim warned that this huge influx of supply could lead to some selling as traders look to raise money to put into these products. For the long-term investments we champion at our club, short-term supply-driven stock price declines are certainly something to consider, but not something to scare you out of the market. If anything, they are meant to be exploited. (Jim Cramer’s Charitable Trust is long CRWD, PANW, and AVGO. 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.
