We recently compiled a list of Jim Cramer’s “10 Stocks That Could Change Your Investing Strategy,” and in this article, we’ll take a look at how NVIDIA Corporation (NASDAQ:NVDA) stands in comparison to other stocks that could change your investing strategy according to Jim Cramer.
Cramer says tech stocks do well when interest rates are high, but struggle after rates are cut
In a recent episode of Mad Money, Jim Cramer points out that tech stocks often perform well when the Federal Reserve keeps interest rates high and the economy is slowing. However, when the Fed cuts interest rates, as it has recently done, Wall Street shifts its focus to companies that can demonstrate significant earnings growth due to lower interest rates. This may be confusing, but the stock market is cash-constrained and now capital is flowing to companies that would struggle without the interest rate cuts. Many stocks initially rose after the cuts but were unable to sustain those gains and the market fell.
“The problem is, when the Fed keeps interest rates high and the economy is slowing, these tech stocks tend to be the winners. But when the Fed steps on the gas, like it does today, Wall Street bands together and flocks to companies that can make big profits at much lower interest rates. Now, this may sound strange. Obviously, the real world doesn’t distinguish between companies that do well all the time and companies that do very well sometimes.
But in the crazy world of the stock market, there’s only so much cash to go around, and right now money is flowing to companies that would have gone under if the Fed hadn’t cut interest rates. These companies’ stocks are so overvalued right now that money is flowing there. All the other stocks went up, but couldn’t sustain the gains after the rate cut. These stocks just kept going up. Unfortunately, there aren’t enough of them for the average to finish in the black. So they end up in the red.”
Cramer questions whether all tech stocks are weakening, suggesting that not all companies will suffer the same fate. He believes there are still standout stocks in the tech sector that can thrive regardless of economic conditions, even if they perform poorly on market down days. These companies help larger companies run more efficiently, and there will always be a demand for such help, suggesting that some tech companies will continue to thrive.
“So are actors all destined to have the same small roles? Are the stock prices of all tech companies falling now? Is there nothing to rise above them? Like when I was in high school and I was in Bye Bye Birdie and Guys and Dolls. I mean, first of all, publicly traded companies can’t have stock prices that low. I was completely disposable except for my role as Lt. Rooney in ARS Gold Lace, in which I don’t think I ever spoke more than a few words.
But when interest rates fall, there will be tech stocks that shine. But we came here to look for the real stars that can thrive regardless of the economic climate, and on a day like today, they’re not doing so well. A lot of these companies are geared towards helping big companies do more with less, and they’re always in demand. They’re not big companies. They bring in these companies to fill the gaps and do better with less.”
The story continues
Jim Cramer: Artificial intelligence will drive profit growth despite slowing sales
Jim Cramer also emphasized that artificial intelligence is a key factor in today’s market: Companies that use AI can increase their profit margins and increase revenue even during declining sales, showing that AI can increase profitability without increasing sales.
Our Methodology
This article summarizes the latest Mad Money episode in which Jim Cramer analyzes several stocks. We selected 12 companies and ranked them by their level of hedge fund ownership, starting with the least owned companies and working our way up to the most owned companies.
At Insider Monkey, we stick to stocks that hedge funds concentrate their investments in. The reason is simple: our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
Close-up of a colorful high-end graphics card plugged into a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
Number of hedge fund investors: 179
Jim Cramer highlighted NVIDIA Corporation’s (NASDAQ:NVDA) ambition to develop more powerful chips that can accomplish incredible tasks. He said that NVIDIA Corporation (NASDAQ:NVDA) has already made great strides in this area, showcasing its innovative capabilities.
NVIDIA Corporation’s (NASDAQ:NVDA) strong outlook is supported by impressive second-quarter 2024 earnings, which beat analyst expectations and showed record revenue growth due to rising demand for GPUs in data centers and AI applications. A leader in AI hardware and software, NVIDIA Corporation’s (NASDAQ:NVDA) GPUs are essential for training and running AI models, positioning the company for continued growth as AI adoption increases across industries.
NVIDIA Corporation (NASDAQ:NVDA) is strengthening its product lineup with innovations such as Hopper and Grace architectures that improve performance for AI and high-performance computing tasks. Through strategic partnerships with leading technology companies, NVIDIA Corporation (NASDAQ:NVDA) is expanding its influence in areas such as autonomous vehicles, cloud computing and gaming.
Rising investments in AI and machine learning have led analysts to raise their price targets for NVIDIA Corporation (NASDAQ:NVDA), reflecting positive expectations for the company’s growth. Recent announcements of major deals and advancements in AI technology have further boosted investor confidence, creating a bullish outlook for NVIDIA Corporation (NASDAQ:NVDA).
NVDA is ranked #1 overall on Jim Cramer’s list of stocks that could change your investment strategy. While we acknowledge NVDA’s investment potential, we believe that less obvious AI stocks could potentially deliver higher returns in a shorter time frame. If you’re looking for AI stocks that are more promising than NVDA but still trade for less than 5x their earnings, check out our report on the cheapest AI stocks.
Read next: The $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and NVIDIA Has “Become a Wasteland” According to Jim Cramer.
Disclosures: None. This article was originally published on Insider Monkey.
