Hyperscalers are now the epicenter of a bear case for stocks

If the facts change, then I must change too. I learned this by reading the legendary British economist John Maynard Keynes, and it has never steered me wrong. I was a big bull on this market because of the amazing things happening in AI. And given the frozen housing market and the underclass struggling with high gas prices, declines in health care coverage, and gratuitous cuts to food stamps, we had a new Federal Reserve chairman named Kevin Warsh, who wanted to lower interest rates to spur growth. I made that decision, as I always do, by going to the source: the twenty largest publicly traded retailers in the United States, who know far more about their spending habits than the government does. These include auto and auto parts companies as well as helpful home care businesses. The idea that we don't need rate cuts is delusional. But then we got the monthly employment report on Friday; That report showed job growth unexpectedly picked up in May, with nonfarm payrolls rising by a seasonally adjusted 172,000, well above the Dow Jones consensus forecast of 80,000. Of course, this figure never distinguishes between those who are employed and doing well and those who are employed and trying to keep it together. Jobs mean self-sufficiency in this country, and there are no counterarguments to that line of thinking, although I made no attempt to do so when I interviewed President Donald Trump's chief economic advisor, Kevin Hassett. But the nature of the poor working class was not worth the effort, even though it was obvious to all but those with wealthy friends and acquaintances. Knowing people at all levels of the economic spectrum is like knowing the cost of milk and gasoline. It helps you do your job well. The stronger-than-expected report eliminated the possibility of a rate hike this year, or even a single one, giving a big boost to my bullish bet. I might have ignored the macro if it weren't for the dramatic change in data center construction, where costs have risen sharply on everything from labor and construction materials to power and site development. We went from thinking there would be a refund in the near future to having no idea when it would happen. Just a month ago, I felt that Amazon's confidence in the return on invested capital was so certain that there was no need to worry. I now worry that Amazon may need to make a stock offering because the return on AI is more elusive than certain. I also thought we should only bother with stock offerings from a few private companies: OpenAI, Anthropic, and SpaceX. But after Alphabet announced plans to raise $80 billion through stock sales to fund its AI efforts, it looks like the biggest tech companies, including Amazon, Microsoft, and Meta, may need to raise large sums for AI by selling shares. It is not possible for this market to handle this much equity capital and remain at these levels. So we find ourselves moving from a smooth transition path from the possibility of a rate cut in 2026 to hyperscaler profitability to a possible rate hike this year and endless massive fund raises. Now let's take a break and let me put on my hedge fund hat. I don't like doing this for many reasons. First of all, if I were to do that, I might even become a hedge fund manager, and I did that and retired because go read "Confessions of a Street Junkie" and you'll see why. Another is that I cannot do what the hedge fund manager does. When I saw the Alphabet bid was successful, I should have realized that we would be faced with a series of deals when we didn't have the money to do them. I've told you many times that we can't think straight when we have so many deals in hand and it's time to move on. In hedge fund lingo, getting out means selling whatever you're long and opening a short position in the same stocks while pivoting to stocks unrelated to the data center, like Johnson & Johnson and Procter & Gamble. This also means AI stocks like Arm, Qnity, and even Corning are selling out, as well as stocks like Marvell and Nvidia. You would do this because you'll notice that you'll get a lot of stories about the data center being hated all over the country, too hard to build, too expensive, and a never-ending source of equity. Overscalers, the source of the greatest stock story ever told, are now at the epicenter of the bear case. I can't do any of this now. I can't trade much and I'm constantly talking about my positions. That's why Morning Meeting (10:20 a.m. ET) is so important: you hear what I can do, not what I can't do. Rules protect everyone. I am in a position to influence prices and I do not benefit personally from this. So what do we do in a situation where we believe we can receive an offer from Microsoft or Amazon at any time? First we need to predict what will happen when the SpaceX deal is priced next Friday. There are many people who have no affiliation with E-Trade or Robinhood (or any other firm that owns the stock) who will buy some shares at market price. They will be the ones determining the opening. Unless SpaceX founder and CEO Elon Musk says institutions can take profits, the stock will be worth $4 trillion. The opening should be similar to the spring of 1999, as I have no idea where the supply is coming from at this time. This type of opening actually creates some liquidity that could be useful for the next five deals. Or the company absorbs all available dollars and the structure collapses, which is a very real possibility. The novelty of the deal doesn't help the situation because no one seems to know what's going to happen. I don't care about all these slices; I only care about the first set of stocks to hit the market. I can't wait for it to be good. I just want it to happen on a day when Trump isn't creating manufactured mayhem. The real issue here is how much is allocated to technology and how much to non-technology stocks. Growth investors accustomed to the Rule of 40, a software metric that suggests a company's revenue growth rate and profit margin should be at least 40%, are shunning tech for healthcare and consumer companies that still show strong organic growth, among others. So you need to reposition yourself. We tried. We still have a lot of work to do. I love all our health services, especially Cardinal, which had no flies to begin with. I realize we started our Intel position too early with our first purchase last week. But if the market meets all of this supply, Intel will be the next Micron. Let's talk about this possibility. At some point an Nvidia customer will have to step up and say how lucrative this all is. I believe it will be Anthropic. Once this deal is completed, the worst may be over. If I were a hedge fund manager, I'd know how to rebuild the entire pitching match. But I'm not. So it's very difficult but I'll do my best to let you know. So what will my stance be like tomorrow? Simple: a crushed bull, not an aggressive bear. I was punished because I kept saying we should run away when we made too many deals. But bullish because the long-term impact of the Fourth Industrial Revolution is not that long-term; It's happening now. It's just that Microsoft doesn't want to be marginalized. Amazon wants Amazon Web Services to remain the leading cloud platform. Meta may want to have a robust Meta Web Services. And Alphabet wants to maintain its leading position. They all have to keep spending heavily or they will fall behind. But in the near term, there are many mouths to feed, but not enough food. The market may be overwhelmed. That's where we find ourselves. Not an ideal place to be. (See here for a complete list of stocks in Jim Cramer's Charitable Trust.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation's portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. 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