AI data center stocks bounced back on Monday after taking a beating last week, but “Mad Money” host Jim Cramer says investors should not rush to call a bottom. With major hyperscalers set to report earnings, Cramer is looking for several signs before becoming bullish on the battered group.
AI Data Center Stocks Need To Prove The Rebound Is Real, Says Cramer
Cramer said the first hurdle is technical. AI data center stocks have produced ugly chart patterns after peaking in June, including potential double tops in semiconductor and memory ETFs and head-and-shoulders formations in other parts of the group.
“The charts need to get better,” Cramer said.
Monday’s rebound was encouraging, but Cramer wants to see a stronger move that establishes a pattern of “higher highs and higher lows.” He also pointed out that last week’s selloff did not break the late-July lows, which marked the bottom of the previous major wave of AI data center selling.
“Today’s bounce though, I’m going to call it a good start,” he said.
The Nasdaq Composite and Nasdaq-100 also fell below their 50-day moving averages during Friday’s selloff. Cramer said getting back above those levels would provide another important signal that the group is stabilizing.
Until then, investors should be careful about treating Monday’s rebound as a confirmed turnaround.
Microsoft, Alphabet And Amazon Earnings Could Make Or Break The Trade
The next major test comes from the hyperscalers. Cramer said earnings from companies spending enormous sums on AI infrastructure will reveal whether the spending boom remains intact.
“If you’re hoping for a resurgence in the AI data center cohort, these companies need to maintain their gigantic capital spending spree,” Cramer said. “Need to maintain, not cut.”
Any indication that Microsoft Corp. (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL) or Amazon.com Inc. (NASDAQ:AMZN) are preparing to slow their AI investments could quickly hit the broader data center trade.
“If they start to signal that they’re preparing to dial back their investments, the whole group is going to get whacked,” Cramer said. He added that investors will also be watching whether that spending is translating into actual cloud and data center revenue.
“We need to see that they believe in it,” Cramer said, pointing to the potential for “hundreds of billions of dollars in revenues.”
Cramer expects the upcoming earnings stretch to be a “high stakes gauntlet of tech earnings.” Strong cloud infrastructure growth combined with continued capital spending could help restore confidence in AI data center stocks.
“As long as they don’t blink, though, I think we can get through this,” he said.
Microsoft, Alphabet, and Amazon are set to report their latest quarterly results next week. Meta Platforms Inc. (NASDAQ:META) will report its results on Wednesday, according to Benzinga Pro data.
Midterm Elections And Anthropic IPO Could Provide Final Confirmation
Cramer sees two more potential catalysts before investors can confidently declare a bottom: the U.S. midterm elections and a potential Anthropic IPO.
“I don’t think the AI data center cohort can put in a sustainable bottom until after the midterm election,” Cramer said.
He argued that data centers have become politically sensitive ahead of the election, creating uncertainty for companies planning major projects. Once the election is over, Cramer believes state and local officials may be more willing to negotiate with hyperscalers over new data center investments.
The potential Anthropic IPO could offer another important test of the AI spending cycle. “We need to see someone is making money or will soon be making money from all this data center investment,” Cramer said.
A successful IPO could give investors more confidence that AI infrastructure spending ultimately leads to sustainable profits.
For now, however, Cramer remains cautious. “Even after today’s bounce, I still think it’s just a little too early to say that the coast is clear and it’s safe to dive back into the hardest-hit AI data center stocks,” he said.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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