Jim Cramer warns margin trading raises risk in AI data center stocks
CNBC’s Jim Cramer said investors using borrowed money in AI data center stocks should cut exposure as volatility rises.
By Theo Nakamura · Staff Writer
· 3 min read
CNBC’s Jim Cramer margin trading warning landed squarely on the AI data center trade, where a sharp run-up has started to meet more skepticism. On Monday, the “Mad Money” host said investors using borrowed money to buy companies tied to data centers face extra risk if the group keeps swinging.
Cramer’s message was blunt: investors who borrowed to buy data center-related names should sell those positions at the market open, according to CNBC. He said, “If you’re borrowing money to buy something related to the data center, then tomorrow morning, 9:30 a.m., sell it no matter what,” adding, “You won’t regret it.”
The warning comes after many stocks tied to artificial intelligence infrastructure and data centers climbed sharply over the past year, CNBC reported. More recently, some of those shares have pulled back as investors question whether companies can keep spending on data center construction at the same pace.
Why did Jim Cramer warn about margin trading?
Cramer said the AI trade has become more fragile, and that makes borrowed-money bets more dangerous. Margin trading means borrowing from a brokerage to buy more stock than an investor could with cash alone.
That leverage can increase gains when stocks rise, but it also increases losses when prices fall. If a position drops enough, the broker can issue a margin call, requiring the investor to add cash or sell holdings, sometimes during a weak market.
CNBC reported that margin debt has climbed sharply over the past year. Cramer tied that increase to the risk in volatile AI and data center shares, saying, “If you’re on margin, get off it.” He added, “I no longer feel that you’ll get out alive.”
For everyday investors, the key mechanism is straightforward: borrowed money reduces room for error. A stock can be part of a long-term growth story and still fall enough in the short term to force a sale if the investor is leveraged.
What did Cramer say investors should consider instead?
Cramer said investors should avoid concentrating too much in pure data center plays and look for companies with several sources of growth, according to CNBC. He highlighted CRH, a building materials supplier, as an example.
His point was that CRH has some connection to data center construction because it supplies materials used in those projects, but its business is broader. Cramer said the company also serves roads, bridges and office complexes.
“We want tech, but not the kind of big tech investors used to buy,” Cramer said. “We want materials tech and we want science tech.”
Cramer did not say all technology exposure should be avoided. He said investors who own strong technology stocks outright, without using margin, may be able to handle the turbulence if they can tolerate losses along the way.
“Now, if you own terrific tech stocks, and you’re not on margin, you could be fine, assuming you can handle some pain,” he said.
The distinction Cramer drew was less about AI itself and more about financing. Owning a volatile stock with cash can be uncomfortable. Owning it with borrowed money can turn a selloff into a forced decision.
This story draws on original reporting from CNBC.
