- CNBC’s Jim Cramer discussed Monday how the market’s rally could be sustainable, as investors pay for stocks with tangible earnings success.
- “This market needs some new champions to rally – at least one, preferably more,” he said. “Otherwise we will descend into this pure multiple expansion, making the market riskier than I would like.”
CNBC’s Jim Cramer on Monday saw what was necessary to create a sustainable market rally, saying the market needs companies with concrete reasons for gains.
“This market needs some new champions to rally – at least one, preferably more,” he said. “Otherwise we will descend into this pure multiple expansion, making the market riskier than I would like.” “That doesn’t mean it can’t keep going up, but it does mean that the rise from here will be much less sustainable and, yes, much more risky.”
Cramer first pointed to technology stocks like Nvidia, where the semiconductor company’s price has been much higher than expected this year due to its prominent role in generative artificial intelligence. Cramer said Nvidia shares rose for two reasons: investors are willing to pay more for the same earnings — known as multiple expansion — and because the company’s earnings were better than expected. But for him, the stock is rising mostly for the latter reason.
“Why should we care? Because, at the end of the day, we don’t want to pay more and more for the same profits, right?” – asked Kramer. “When that happens, they become more expensive, and they become riskier. We want stocks to become reasonably priced based on higher earnings because that kind of rally is sustainable.”
He then applied the same principle to Microsoft, saying the company’s use of generative artificial intelligence had made it very popular on Wall Street. He said last year that few investors knew that generative AI would lead to such huge increases in profits. Cramer added that Microsoft’s gains depend on tangible potential and higher profits, not just “love” for the company that would lead to fleeting stock success.
“These are big pieces for the market,” Kramer said. “They got us here. If we want to go any further, another lot is going to have to get very cheap.” “There has to be a better earnings story that we don’t know yet.”
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Disclaimer The CNBC Investing Club Charitable Trust owns shares of Nvidia and Microsoft.