AI trade cooled off. Jim Cramer gives a timeline

Wall Street’s love affair with AI trading, a key driver of the market’s gains in recent years, hit a rocky patch this fall. On Tuesday, CNBC’s Jim Cramer said further declines in AI stocks could be on the way.

Analyzing what’s causing the hot AI trade to cool, Cramer said the seeds of market concern were sown around Oracle’s earnings report in September, and those concerns have grown in particular as ChatGPT maker OpenAI’s massive spending commitments on AI infrastructure snowballed.

“You know I still believe in artificial intelligence,” he said. “I think we need to experience more turbulence before we reach the promised land, even a major shakeup if OpenAI is actually worse than we think.”

Investors in September initially welcomed Oracle’s massive growth in cloud computing, with the stock rising 36% in a single day. But media reports soon showed that the vast majority of these future commitments were tied to a single customer at OpenAI. As Oracle turns to debt markets to pay for building AI infrastructure and OpenAI announces a number of other deals with other tech players, Cramer said investors are starting to show signs of uneasiness.

Cramer said the software company’s leadership change, announced Sept. 22, has been under the spotlight ever since. He quoted a recent Article by Financial Times It suggested that former CEO Safra Catz left his post after opposing the company’s spending plans, adding that Catz also cashed in Oracle stock options worth about $2.5 billion this year. Cramer noted that Oracle’s credit default swaps (the cost of insuring Oracle’s bonds) have more than doubled in the past two months.

Another big shift in sentiment around AI trading occurred toward the end of October, Cramer said. Meta And Microsoft reported earnings and said they continue to spend big on artificial intelligence. This time, stocks fell in response; This was another sign that the market was no longer welcoming all AI spending with open arms.

But ultimately, OpenAI’s big spending commitments in September and October “appear to have pushed Wall Street over the edge,” he continued; because investors fear that the company will not be able to pay more than the $1.4 trillion it promised.

Cramer suggested that OpenAI CFO Sarah Friar’s comments earlier this month suggesting her company could receive support from the federal government were even more concerning. While Friar later clarified that OpenAI was not currently seeking a government rescue plan, he noted that these comments had prompted further scrutiny into the company’s financial situation over the past few weeks.

Cramer hesitates to be too negative; suggests AI darling Nvidia could do it “Turn things around with a big quarter” when earnings were reported Wednesday evening — generally speaking that “OpenAI feels the need to get a little more reassurance about its financial position, that’s what I’m concerned about,” he said.

“Otherwise, the whole AI structure feels a little more unstable than it did even a few weeks ago,” he continued.

Sign up now For CNBC Investment Club to follow Jim Cramer’s every move in the market.

Disclaimer CNBC Investment Clubs owns shares of Nvidia, Meta and Microsoft.