Cramer says AI bubble fears miss the broader market picture

CNBC’s Jim Cramer said Tuesday that fears of an AI-fueled stock bubble are overstating the risk across the wider market. For everyday investors, his argument comes down to three checks on market excess: interest rates, profits and valuations.

Cramer, host of CNBC’s “Mad Money,” said some speculative areas do exist, including high-profile companies such as SpaceX. But he argued those examples should not be treated as a stand-in for the full stock market.

The debate has picked up as artificial intelligence enthusiasm has helped push stocks to record levels over the past year. CNBC reported that memory-chip makers Micron and Sandisk have climbed more than 243% and 644% this year, respectively, as investors have chased companies tied to AI infrastructure.

Those kinds of moves have invited comparisons with the late-1990s internet boom, which ended in a sharp market break. Cramer pushed back on that comparison, saying the setup today looks different from the period before the dot-com crash.

Rates are a key part of the argument

Cramer pointed first to interest rates. Higher rates can pressure stocks because they make borrowing more expensive for companies and can make safer assets, such as bonds, more competitive with equities.

According to Cramer, the dot-com collapse came after a severe tightening cycle by the Federal Reserve. He said Tuesday’s cooler-than-expected consumer price index report reduced concern that the central bank would need to lift rates soon. The consumer price index, or CPI, tracks changes in prices paid by consumers and is one of the main inflation gauges watched by the Fed.

Cramer also said comments from Fed Chair Kevin Warsh did not suggest a near-term push to tighten policy if inflation remains near current levels.

Valuations look different from 2000

Cramer also focused on valuations, especially the price-to-earnings ratio. That measure compares a company’s stock price with its profits, giving investors a rough read on how much they are paying for each dollar of earnings.

Using FactSet data cited by CNBC, Cramer said the S&P 500 entered 2000 at more than 25 times forward earnings. Forward earnings are analyst estimates of future profits. By comparison, he said the index trades at about 20 times forward earnings today.

He said that level is not low, but argued it is meaningfully below the valuation investors saw near the height of the dot-com market.

Cramer also cited large financial companies as evidence that the market is not broadly expensive. He said Bank of America, Goldman Sachs and JPMorgan reported earnings and revenue that came in above expectations Tuesday, while trading at about 12 to 18 times forward earnings. CNBC noted that Cramer’s Charitable Trust, the portfolio connected to CNBC’s Investing Club, owns Goldman Sachs shares.

He made a similar point about some technology names. Cramer said SK Hynix trades at roughly four times 2027 earnings estimates, while Micron trades around six times. He also said Nvidia, despite its central role in AI, trades at a multiple close to the broader market. CNBC noted that Cramer’s Charitable Trust owns Nvidia shares.

Cramer’s overall view: pockets of speculation are real, but he does not see them defining the market. His case rests on a market where many large companies are still posting strong results and trading at valuations he considers far removed from the dot-com peak.

This story draws on original reporting from CNBC.