We recently compiled a list of the Jim Cramer’s Bearish Calls: 10 Tech Stocks Heading for a Crash. In this article, we are going to take a look at where ARM Holdings plc (NASDAQ:ARM) stands against the other tech stocks.
For Jim Cramer, tech stocks and the Federal Reserve’s interest rate cuts are a major talking point. Investors continued to deal with an uncertain macroeconomic picture that was complicated by a ‘bullish dove’ of a Fed that cut interest rates by 25 basis points but also hinted that 2025 would see fewer rate cuts than expected. The day the Fed announced the interest rate cut, the benchmark flagship S&P index sank by 2.95%, with more speculative investments such as Bitcoin dropping by a sharper 8.6%.
Yet, as has been the case with the macroeconomic picture, the sell-off appeared to be a bit too much. Two days later, on Friday, the Commerce Department released the ever-important Personal Consumption Expenditure (PCE) dataset. The PCE is the Fed’s preferred inflation reading, and it revealed that the annualized inflation in November was 2.4%. This reading was shy of 0.1 percentage point of economist expectations. As a result, it signaled to investors that perhaps the Fed might take it easy with the interest rates heading into 2025.
The slightly improved expectations saw the S&P gain 1.86% on the day of the PCE data release. Cramer was optimistic as well, sharing that the data was “somewhat reassuring. Because if we do get lower inflation, I think it’s certainly a possibility because we’re starting to get our arms around what’s really causing inflation. Then it doesn’t seem so devastating, what happened on Wednesday.”
However, he added that the bullish data release didn’t mean that markets would reverse all their losses since Wednesday. Despite the fact that inflation ticked lower, the S&P index is still down 1.83% since the data release. Cramer shared some insight into the reasons behind the weakness. According to him, the market has been speculating a lot on areas such as quantum computing and Bitcoin. The CNBC host outlined that “rampant Bitcoin speculation, after speculation in nuclear power, after speculation in quantum computing” had driven the market performance ahead of the rate announcement. Consequently, since these areas lack fundamentals, investors might not have immediately returned to them.
His Squawk on the Street appearance the day after the rate cut was also full of pessimism for quantum computing stocks. These stocks have gained as much as 162% over the past month – a development that would, on the surface, indicate a groundbreaking shift in their prospects. However, these movements have been driven primarily by Google’s Willow quantum computing chip. The hype surrounding quantum computing is understandable as Willow claims to solve a problem that would take a traditional supercomputer 10 septillion years to solve in less than five minutes.
However, Cramer remains unconvinced about this technology niche. Commenting on the stock that ranked 16th on this list of stocks that he talked about, the host wondered what had driven its 162% in returns. Likening quantum computing stocks to non-fungible tokens, Cramer commented:
“How are these companies going to, how is D-Wave Quantum by the way, how is that going to quantum? When we don’t even know what quantum is? It’s a nonfungible tokens, right? Cause you know what a fungible token was?”
As for the Fed, he believes that the central bank’s data-dependent strategies backfired with the bullish rate outlook as “they chose not to be data-dependent.” On the episode of Mad Money aired the day of the rate cut, he speculated that Fed Chairman Jerome Powell seemed to have been “caught having to fulfill a prediction of the need for a rate cut, and that need was no longer self-evident. The data didn’t back it up.” Cramer added that he believed “It would have been much better off if they had explicitly taken a wait-and-see approach before this meeting. This time they telegraphed the wrong thing. Hence today’s meltdown.”
On the next day, Cramer added the Fed might have been better off ahead of the call not having signaled that it was going to cut rates. However, as it did the opposite, it was locked into cutting rates while the data pointed towards a robust economy that might not have needed lower interest rates. “I think it confused people. It confused people because they cut rates and then gave exactly the, what I would call the [inaudible] for not cutting rates,” shared Cramer and added that the Fed “got trapped, Jay got trapped.”
For 2025, Cramer wants investors to focus on stocks that might change the world. In a recent Mad Money episode, he outlined that some stocks tend to stand against the tide due to fiercely loyal followers. Sharing some advice, Cramer stated:
“There’s a lesson here and it is a brutal one. Sometimes conventional methods of valuation are completely worthless, and you need to embrace the dynamics of cult stocks. The trick is to recognize when we’re in one of those moments. In 2025, let’s strive to find the stocks of companies that do defy orthodoxy.”
Our Methodology
To make our list of Jim Cramer’s bearish tech stock calls, we scanned the stocks he mentioned in Mad Money and Squawk on the Street as far back as in August. Then, we picked out stocks he was bearish on, analyzed their performance, and ranked them by the number of hedge funds that had bought the shares in Q3 2024.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds invest in? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
High angle view of a semiconductor chip against an array of electronics components.
ARM Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Holders In Q3 2024: 68
Date of Cramer’s Comments: 08-22-24
Performance Since Then: -2.20%
ARM Holdings plc (NASDAQ:ARM) is a British chip design house whose IP is present in the majority of smartphone processors and other chips. This enables the firm to enjoy a wide moat, which has strengthened in today’s era of data centers and cloud computing. Big tech firms have used ARM Holdings plc (NASDAQ:ARM)’s designs to make in-house chips. The firm has also sought to further solidify its market presence by providing an off-the-shelf solution to firms looking to design chips. However, ARM Holdings plc (NASDAQ:ARM)’s shares are down by 16% over the past six months as they have been driven by the firm’s inability to significantly benefit from the ongoing AI boom despite its near-ubiquity in the smartphone industry. In August, Cramer shared that he preferred ARM Holdings plc (NASDAQ:ARM) over Intel, and the latter’s stock has lost 5.6% since his comments:
“Intel is struggling with competition from AMD and Nvidia, and I prefer ARM Holdings over Intel in the current tech landscape. Intel has challenges but may benefit if it can leverage AI advances effectively.”
Overall ARM ranks 6th among the tech stocks Jim Cramer talked about recently. While we acknowledge the potential of ARM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.