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CNBC’s Jim Cramer on Monday said the AI trade has become increasingly fragile.
“If you’re borrowing money to buy something related to the data center, then tomorrow morning, 9:30 a.m., sell it no matter what,” the “Mad Money” host said. “You won’t regret it.”
Many AI infrastructure and data center stocks have run up sharply over the past year. However, the cohort has started to pull back as investors question whether the pace of data center spending can continue. Cramer said the volatility in AI stocks that has stemmed from that uncertainty makes investing with borrowed money — known as margin trading — especially dangerous. The amount of margin debt has increased sharply over the last year.
“If you’re on margin, get off it,” Cramer said. “I no longer feel that you’ll get out alive.”
Buying stocks on margin involves borrowing money from a brokerage to increase the size of an investment. While the strategy can amplify gains when share prices rise, it also magnifies losses. Sharp declines can trigger a margin call, forcing investors to either deposit additional cash or sell holdings—potentially at worse prices.
Rather than concentrate portfolios in data center plays, Cramer said investors should look for companies with more diversified sources of growth. He pointed to building materials supplier CRH as one example, noting that while the company supplies materials used in data center construction, most of its business comes from roads, bridges, and office complexes.
“We want tech, but not the kind of big tech investors used to buy,” Cramer said. “We want materials tech and we want science tech.”
Cramer added that investors who own quality technology stocks outright may still be able to weather the volatility.
“Now, if you own terrific tech stocks, and you’re not on margin, you could be fine, assuming you can handle some pain,” he said.
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