Jim Cramer says Wall Street is rotating out of AI memory stocks like Western Digital, after a 40% plunge from June highs, and into names like Costco and Johnson & Johnson.
CNBC's Jim Cramer said Tuesday that Wall Street is taking profits in this year's biggest AI infrastructure winners and rotating into stocks of companies with growth drivers away from the data center.
"You can call it a broadening," the "Mad Money" host said. "Or you can call it fleeing."
Stocks tied to the artificial intelligence data center buildout dominated the market for much of the first half of the year. Many of them have pulled back sharply in recent weeks. Prime examples are Micron, Western Digital, Seagate and Sandisk. Their shares soared as shortages of memory used in AI servers gave the companies unprecedented pricing power. After peaking in June, those stocks have tumbled as investors bet those shortages – and the extraordinary profits they created – won't last forever.
"I have been through many boom-bust cycles with these companies," Cramer said. "You have to sell the parabolic moves that these shortages trigger because they always end." He added: "The stocks just anticipate the ending."
Take Western Digital. The stock hit an all-time closing high of $746 on June 18, up 333% for the year. Less than six weeks later, the stock is down nearly 40% from its record.
Cramer stressed that investors are not abandoning the market altogether. Instead, they are redeploying capital into companies whose growth depends less on continued AI infrastructure spending. Even beaten-down software companies like ServiceNow and Salesforce are catching a bid, up roughly 11% and 16%, respectively, month to date.
"Right now, other stocks are in the sunshine," Cramer said, naming Costco and Walmart, which have been making a run lately. Johnson & Johnson hit an intraday all-time high Tuesday before cooling off. The company announced a $5.5 billion settlement to resolve ovarian cancer litigation, well below the roughly $8 billion proposal a judge rejected two years ago.
Despite the broader pullback in many AI-tied stocks, Cramer said he remains bullish on Nvidia and Intel. He argued their businesses are supported by durable demand rather than the temporary pricing power that lifted memory makers.
Nvidia carries an Alpha Score of 71, labeled Moderate, with the stock at $196.95, up 0.22% today. Western Digital scores 60, also Moderate, reflecting the uncertainty around the memory cycle Cramer described.
Cramer's Charitable Trust, the portfolio run by CNBC's Investing Club, owns shares of Salesforce, Costco, Johnson & Johnson, Intel and Nvidia.
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