Here’s the tech stock to buy in a market losing patience with tech
It’s not the spend that matters, it’s the return. Friday’s decline in tech stocks says so. I think this may be the most significant tech sale in over a year. We need to know what we are potentially facing. We need to know if the trillion dollar spigot has dried up or if it’s just a dry spell. We are consolidating the Charitable Trust portfolio that we use for the CNBC Investment Club, and we are slowly trying to downsize traditional technology (semicos, software, data center) and move to other types of technology that are fueled by technology, such as pharmaceuticals and aerospace. Concerned that there still weren’t enough new customers for Nvidia, we tried to make Intel, not Nvidia, the focus of the portfolio. No, I’m not giving up on Nvidia. It’s still great and I think it’s going to have a breakout quarter. But the “action” in the stock speaks very loudly. The action at Apple screams that the deliberate or actual decision not to spend hundreds of billions of dollars on AI is great. It’s having its best month in three years. Tons of critics are second-guessing Apple’s decision-making. This is wrong. Apple decided a long time ago that a lot would come to it if it made the best handhelds. Like that. This allowed him to choose which hyperscaler-chatbot company he wanted to subscribe to because they quickly became commodities. Google had no choice but to give it away virtually – at least on the net – as Google Search’s return became questionable, while Gemini was no Claude from Anthropics. So we belatedly turned to a new company, Intel, because we could see the ratio of graphics processing units (GPUs) – Nvidia’s giant, expensive chips – to central processing units (CPUs) – Intel and Advanced Micro Devices (AMD) – and perhaps Arm Holdings (if it can get foundry time despite partnering with Intel) changing rapidly. When Lip-Bu Tan took over as CEO of Intel, the ratio was about four GPUs for every CPU. Last Thursday he told me that means one CPU for every GPU. Data centers will soon have four CPUs for every GPU. Gross margins on GPUs are much more generous than on CPUs. A well-managed Intel can change this. This is a well run Intel. Plus, the CEO is perhaps the most committed semiconductor investor who knows how to spend money wisely to build foundries (factories that make chips) that are in short supply. Most importantly, he knows about packaging, which is the equivalent of packaging to make CEOs stronger these days when it is increasingly difficult to make nodes smaller and stronger. According to Jensen Huang, Moore’s Law – Intel founder Gordon Moore’s idea that you can keep building ever more powerful, smaller chips – may have been extinct – Or it may have been absolutely extinct, according to Jensen Huang. When in doubt, go with Jensen. So we chose Intel, betting on an upside surprise. As always, we are slowly buying for the Foundation. We had just over a half position to bet against ourselves that the company would report an outstanding number. We lost the bet. It was great, maybe better than that, and was up more than 10% in last Thursday’s after-hours session. High five everywhere. We looked good. Now, I was in Long Island to host a rehearsal dinner for private weddings; the marriage of my stepson, Will Detwiler (who has been in this position for 21 years and has had a lot of upbringing) and his incredible now wife, Caroline (Win With) Willkie. It was a pretty big prelude to the real thing, a rehearsal dinner so big that there was a rehearsal of the rehearsal dinner. Even though I had no confidence in the market, I was confident in the market’s reaction to Intel. It’s a little harder to keep much of anything going for long when you have a president talking about saturation bombing of a crafty rival that appears to be a state with more missiles than people. Who knows what may drive war, wars or oil, we are back to where the bears can safely argue for 5% to 6% inflation. My trust was misplaced. Completely. On Friday, I woke up early to avoid disturbing attendees, received a call from American Express saying it would create selling pressure, and saw that Intel was trading at $106.30, not $109 on a retina. Then $106.28, and then $106.20, and the pace was both nauseating and relentless. Almost no stands were built before Sunday time. Count the rises on several hands. After it drops to $103 and changes, just before Friday’s open, you can calculate how much it will fall that day. I changed my mindset and got into the mood to thank my lucky stars that I had plenty of places to buy; if we still want it. Which brings me to the heart of this beautiful Sunday after a perfect wedding piece, where I forced myself to be in the present constantly; It’s something I’ve only been able to accomplish in one wedding mine and two Super Bowls. So what happened here? Why did Intel close down nearly 8% on Friday? I’ve heard many reasons for tech sales. The most important of these is that the market decides to use its power to stop spending. While Alphabet’s shares were trending nearly forty points below the once terrifically priced secondary stocks (at least before we heard that Google would ramp up its capex again), many sellers appear to have decided enough is enough. We will not reward spending with higher market value. This was a brutal decision, especially considering that Google Cloud had an incredibly tremendous quarter; For example, the interview with Thomas Kurian, president of Google Cloud and often referred to as the LeBron James of technology, is a refreshingly poignant statement given my penchant for the Philadelphia 76ers. This Alphabet call made me wish Ruth Porat would return to the CFO role, and so did the 80+ calls she made to explain why expenses continue to rise. Yes, we can say “to meet demand,” as CFO Anat Ashkenazi has said repeatedly while sprinkling positive things about Alphabet’s bottom line. I found both statements painful. That’s because Alphabet’s balance sheet, with its income statement showing negative cash flow, is no longer the most important thing. OK, not great. If you bought into Alphabet because of its solid balance sheet and buybacks, you’re thinking of a different Alphabet than in years past. However, the real pain comes from this “meet the demand” statement we hear a lot. I’m not sure Alphabet knows what it means to hear “meet demand” for a market that’s starting to lose so much money on these hyperscalers. We are definitely not looking for a company that will “meet the demand”. We are looking for them to “make money”. We don’t hear anything like that. The only company here making money with Alphabet is Apple. This “meeting demand” thing is very tiring. I think the foundation owns companies that lose fortunes in everything they do, but they will make up for it in volume. What’s happening is that we’re finally starting to accept that these companies don’t know what they’re doing. I’m sure Alphabet thinks if you build it you’ll make a profit; But there are better stories elsewhere. Why do I need this spending horror show when I can get behind the Johnson & Johnson Club name? The technology behind 3M’s materials science doesn’t require billions of dollars to be lost; It just makes money. Again, I’m not in the camp where the emperor has no clothes. One of these emperors will probably be Anthropic because it’s business-to-business (B2B) and we like the stickiness of B2B; The fickle nature of the OpenAI business-to-consumer (B2C) paradigm is seen as the culprit for this shop’s leaky bucket. Oh boy, OpenAI should go public in the worst possible way; Thank you very little. In some ways, it doesn’t matter whether you sell technology because you don’t see a return or because you think these companies lack discipline. In both cases, hundreds of billions of dollars are leaving the cohort. So I wonder if this mentality of going full throttle with the damn salesmen is coming to an end. Which brings me back to Friday’s all-encompassing sale. As you watch Intel shares decline, you can tell that the shares are falling because you’re not experiencing the price target increases that Wall Street analysts were predicting. They were disappointing. But AMD had a simultaneous meeting, and the only companies that can give Intel a chance at money right now are Nvidia, which is due to report late next month, and AMD at the moment. Shares of AMD also fell, but not as steeply as Intel. Sales were fierce. By the end of the session, as the wedding flowers proliferated, Phosphoro (my wife’s agave spirits company) started flowing, and glasses were being prepared, you could almost see the sales transformation from capex discipline to rumors of a hyperscaler’s capex cut. Someone winked. I don’t know if anyone actually blinked. I think we’ll find out on Monday. But unless someone other than the supplier comes along and says “we’re innovating and increasing our numbers” soon, I suspect a trillion dollar market cap will still come at the top of all the AI-powered giants. There are no illusions here. We cannot have a sustained rally in an environment where technology is bleeding from the eyeballs. There are so many companies taking action to see this happen. We know that the Dow Jones Industrial Average is holding out and the S&P 500 is only slightly shaken, but the Nasdaq is back in graveyard mode. I’m saying we continue to move away from traditional technology. We’re standing nearby to see if someone is estimating a profit that could lift all boats, and at least right now we’re aware that there aren’t enough companies left that still need the hardware. So why Intel? Because now the only way to amortize all expenses is to use artificial intelligence agents, and the agents are run on Intel’s CPUs. That and robots. We know that robots are too big a market to be left just to Tesla. I think all hyperscalers will need to offer these. These are not GPU products as much as the CPU market; robots are full of them. We have many use cases now, both inside and outside of data centers, but I believe the next big wave of demand will come from robots spanning B2B to business and then B2C. The current demand for all kinds of technology will keep the CPU afloat. But I think robots give us the use case to keep stocks under some demand after companies hold on to what might be a reasonable pause in spending. I have a feeling we’ll find out very soon whether this is just a pause rumor or an actual pause. Either way, continue to move towards new and different technologies, only supporting Intel when it comes to old technology. A pause can be so jarring that we wouldn’t buy pausers initially, but let’s not get ahead of ourselves either. And remember, the hit and boost from a single hyperscaler changes the entire equation; and three more of them (Amazon, Meta Platforms, and Microsoft) reported earnings this week. And yes, the other Club member who owns Apple is also reporting this week. (Jim Cramer’s Charitable Trust is long INTC, NVDA, AAPL, AMZN, META, MSFT. See here for a complete list of stocks.) When you subscribe to the CNBC Investment 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. 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