The current macroeconomic environment is creating headwinds for artificial intelligence (AI) stocks, according to CNBC’s Jim Cramer.
Cramer suggested that investors are less willing to pay high prices for AI-related stocks due to the pervasive uncertainty. “Why do our stocks go down when nothing’s happened to the companies underneath?” he questioned. “Look, when everyone’s terrified that a piano’s about to fall on their heads, they don’t want to get hit by the baby grand—and right now they don’t want to own the falling stocks either.”
He cited “multiple compression,” a situation where a stock’s price declines without any change in the company’s fundamentals, as a key factor. Cramer noted that this phenomenon seemed to be playing out in the market.
This comes as the Dow Jones Industrial Average dropped 0.62%, the S&P 500 lost 1.07%, and the Nasdaq Composite declined 1.71% after two consecutive winning sessions.
Despite announcements from Nvidia’s annual GTC conference, where innovations in AI were showcased, the stock finished the session down more than 3%. Cramer was of the opinion that “While Nvidia’s announcements ‘might mean everything for the future,’ Cramer said ‘they meant nothing for today.'” He added that tech stocks, particularly those tied to AI, are more vulnerable to multiple compression. Sectors adjacent to AI, such as enterprise software and biotech, may also see losses.
“This latest round of multiple compression came on a day of wonderment about artificial intelligence, and even with Jensen’s fabulous speech, multiple compression was just much more powerful,” he said. “It’s going to stay that way until we get through this environment, either because the White House backs off, or because stocks come down to the point where we simply get used to it.”
