CNBC’s Jim Cramer said Monday that AI trade is becoming increasingly vulnerable.
“If you’re borrowing money to buy something related to data centers, sell it at 9:30 tomorrow morning, whatever it is,” the “Mad Money” host said. “You won’t regret it.”
Many AI infrastructure and data center stocks have soared over the past year. But the group is starting to pull back as investors question whether the pace of data center spending can continue. Kramer said the volatility in AI stocks due to these uncertainties makes investing with borrowed funds, known as margin trading, especially risky. The amount of margin debt has increased sharply over the past year.
“If you can afford it, get out of there,” Kramer said. “I don’t think I’ll make it home alive.”
To purchase stocks on margin, you need to borrow money from a securities company to increase the size of your investment. This strategy can magnify profits when stock prices rise, but it also magnifies losses. A sharp decline could trigger a margin call, requiring investors to park additional cash or sell their holdings, potentially causing prices to deteriorate.
Kramer said investors should look for companies with more diversified sources of growth, rather than concentrating their portfolios on data center businesses. he pointed to the building material supplier CRH As an example, the company notes that while it supplies materials used in data center construction, most of its business comes from roads, bridges, and office complexes.
“We want technology, but not the kind that big technology investors used to buy,” Cramer said. “We want materials technology and science and technology.”
Cramer added that investors who own high-quality tech stocks outright may still be able to weather the volatility.
“If you own a great tech stock and you’re short on margin, you might be OK, assuming you can handle some pain,” he said.
