Obsessed with CoreWeave and the AI trade? You're missing out on some great stocks
You focus too much on one single aspect of this market — one single bad aspect — and you are not going to help people make money. People follow me to make money, and I can’t be endlessly possessed by a little outfit called CoreWeave . It’s a tree, maybe an ash tree, slowly turning extinct because of the ash borer, and there’s a mighty big forest out there worth exploring and exploiting. On a day when we were relatively free of the downbeat narrative with averages mostly positive, I am not minimizing the problems of CoreWeave, a neocloud company that has Nvidia’s full backing. It’s a deeply indebted disruptor that can build data centers fast, but only with a huge amount of borrowed money. It is the epicenter of the blast zone of the world of alternative builders of data centers — not Amazon , not Alphabet , not Microsoft — but it can build them better than most. We all just wish it had less debt, because it can hurt Nvidia if it can’t function or grow anymore due to the cost of money being too high. That matters. Nvidia matters. Nor am I dismissing the problems of Elice, a Korean neocloud company that raised $150 million in an equity offering that fell 32% on Tuesday in South Korea. It’s a $1.3 billion market cap company with a debut so horrible that it led to a collapse in Korea’s stock market. Even though it was very small, I knew it would make headlines, and it did. I even talked about it on “Squawk on the Street.” But my theme was different: I said it was totally absurd to focus on this stuff when there is so much good news happening outside the data center miasma. What was the good news? Good news like a reversal in oil prices after a big spike, or a robust bond market driven by a frozen housing market, as mortgage rates are too high for most to afford a house. It doesn’t matter, though, what caused rates to go down; what does matter is that borrowing costs are cheap for those who want to borrow, and we need that so credit’s not too expensive for companies that want to expand and hire. But while you have your head in the CoreWeave sand, you end up missing incredible earnings and outsized gains from high-quality stocks that have effectively become a flight to quality. That’s how Club stock Johnson & Johnson can go up 2.2%, almost back to where it was when it last reported, after a widely panned quarter that turned out to be a buying opportunity . J & J has the largest pipeline and a bunch of blockbuster drugs. It’s the only drug company that has no real loss-of-exclusivity problem — drugs going off patent — among major pharmaceutical companies. It’s still a buy. JNJ YTD mountain J & J’s year-to-date stock performance. That’s how Lilly can go up 3.5% on two pieces of research suggesting it could deliver blowout earnings on the back of its GLP-1 pill. The stock’s a tough one to stop when Lilly is using all of its marketing muscle. We own Lilly for the Club, and I showed in our Morning Meeting that this one’s not done. That’s why RTX can ramp after it reported a beautiful quarter. Its portfolio of weaponry may not be getting the largest orders from the United States, but the countries bordering Russia are taking everything they can. You need missiles if the Russians try to recreate 1939 or 1946, two moments where Russia claimed all of the countries on its borders. Incredibly obvious to those who recognize that we have, perhaps, abandoned our allies and embraced the historic European aggressor. No wonder its missile book is brimming with orders. I saw fabulous earnings just this morning from 3M , one of my favorite companies because my father used to sell its Scotch tape, ribbon, and board games. For years, 3M was an innovation machine, creating new products that generated significant earnings. It was the nature of the firm for its scientists to develop fabulous new products. Then the company went fallow, and it was abandoned by Wall Street. On Tuesday, the industrial conglomerate announced it was expanding its commercial relationship with Amazon “to deploy and scale 3M’s optical connectivity and other data center-related products,” according to its press release. Incredibly, 3M issued a warrant to Amazon to purchase up to 3.2 million shares of 3M based on $6 billion in cumulative sales of optical equipment. It is a landmark deal between Amazon and 3M that, while not as big as when Nvidia takes a stake in a neocloud company, is still very meaningful. 3M is an old-line company with new-line products, and it’s exciting to people to see that company back to its old ways of winning. CEO Bill Brown’s doing an amazing job bringing back that legacy of invention. Not everything got the right reaction. If you check out the action in GE Aerospace, you probably think the company disappointed. Far from it. What matters is order growth, and it was a staggering 49%. Or, in terms of “you haven’t missed it yet,” check out the reaction in GE Aerospace’s stock to its 49% order growth. Shares fell 3.7% on Tuesday. You’re being given a terrific chance to buy it at a price lower than you should be able to. It won’t be ignored for long. GE YTD mountain GE Aerospace’s year-to-date stock performance. Which brings me to some real self-remonstration. I think it is my job to tell you when CoreWeave is technically in trouble. When it has abandoned discipline and borrowed against everything. The word prudence seems to be missing as more and more debt is issued. I have to do that because of its very strong relationship with Nvidia. Now we cannot turn our eyes away from CoreWeave and only focus on those “random” companies I mentioned. It matters that the largest company on Earth could have its hands full if a major neocloud company that Nvidia invested in can’t continue building out because its debt costs are too high. It’s possible that without continued growth — and it may not have any — it will reflect badly on Nvidia’s order book and growth rate. So from now on, when we hear that someone has an investment from Nvidia, we will begin to worry about Nvidia itself, and if we see other neoclouds break down, outfits like Iren or Nebius , we know Nvidia’s plan to diversify away from the likes of Microsoft, Alphabet, Meta, and Amazon may be in question. Is CoreWeave that much of a problem? Its market cap is only $34 billion dollars for heaven’s sake. But the capital structure is so convoluted you can’t tell how much debt it really has. There are various estimates out there — some of which I might judge as imprudent. So does the market. Because everything tech is intertwined and such a big part of the market, it can take a big chunk of stocks down with it. Tuesday’s earnings show there’s a cohort of the market that can thrive outside of the AI and data-center trade. If we only focus on what can go wrong with the semis and the hyperscalers and the neocloud and the neo whatevers, we could miss quite a few good opportunities, the ones you expect me to bring to you. We don’t need to own the biggest stocks. We just need to own the stocks with the biggest opportunities that can go up a lot, even if they start with a $1 billion market cap. That entails greater curiosity and demands more digging. You may have to ask for the specials instead of eating from the usual tech smorgasbord. Or perhaps you just need to go to a new restaurant entirely. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
