Jim Cramer urges caution on AI stocks despite recent rebound

Jim Cramer told investors on Tuesday not to treat the recent surge in artificial intelligence stocks as a signal that the sector has returned to normal. The warning came as AI-related shares rose for the second consecutive day. This rally followed a $63 billion financing package involving major banks and Blackstone. The funds are intended for Anthropic to purchase computing hardware from Broadcom. The initial gains on Monday were also fueled by Anthropic’s S-1 filing.

While the money is flowing back into tech, Cramer believes the underlying pressures in the data center trade remain unresolved. The sector suffered a sharp decline late last week. "I'm pleased that people feel so comfortable that tech is all good to go because there is money flowing back in," the Mad Money host said. "I don't think that's a reason to call all clear. I think it's a reason to look at other sectors in the economy."

Cramer identified three specific risks that keep him cautious. First, he is concerned about smaller AI infrastructure firms, often called neoclouds. These companies are borrowing heavily to build data centers. Rising interest rates are straining their ability to pay down that debt. Cramer specifically named CoreWeave, Nebius, and Iren. CoreWeave bonds have yielded as much as 15%. Even though CoreWeave shares jumped nearly 8% on Tuesday, Cramer expects more negative news to surface.

Second, he questioned the structure of the Broadcom and Anthropic deal. Cramer noted that Anthropic is borrowing money to buy Broadcom's equipment. He argued that investors are not fully grasping that the company is financing the purchase of hardware from the vendor rather than paying for it with its own profits. "People don't seem to grasp that [Anthropic] got the money in the Broadcom-arranged financing deal to purchase equipment from Broadcom," he said.

Third, Cramer warned that current market calm may not last. Oil prices dropped and the 10-year Treasury yield fell below 5% on Tuesday. This eases borrowing costs for AI companies. However, conditions could shift quickly. The Federal Reserve will announce its latest interest rate decision on Wednesday afternoon. This will be followed by a press conference from Chairman Kevin Warsh. The midterm elections are also scheduled for next week, adding to the potential for market volatility.

Cramer remains a firm believer in the long-term AI build-out. However, he stated that the industry's financing challenges have not disappeared. "With the exception of Nvidia, these data center companies don't have a lot of money. So they have to borrow the money," he said. "The rates are getting so high that the return is getting uncertain. That hasn't changed at all."

The next key event for the market is the Federal Reserve's rate decision later this week. Investors will watch the announcement and Warsh's comments closely for clues on future borrowing costs. The midterm elections will follow shortly after, introducing a new layer of political and economic uncertainty.