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We keep waiting. Waiting for the bombing to begin. Waiting for oil to stop going up. Waiting for the war to end. Waiting for inflation to cool down. Waiting for interest rates to stop rising. Waiting for Kevin Warsh to take the reins of the Fed. Waiting for SpaceX and Anthropic and OpenAI to come public.
It's too much waiting. But do we have a choice? In the interim, you know what we do? We trade. That's right.
Trading is filled with vicious rotational behavior, masked by seemingly sedate averages. Dow advancing 160 points today. S&P dipping 0.07%. The Nasdaq sinking 0.51%. Sometimes we buy hardware stocks and the goods that go into or help build data centers, like semiconductors and semiconductor equipment, while we sell all kinds of software stocks. Sometimes we sell hardware stocks and buy those same software stocks that we threw away. We do more of the former than the latter. So hardware is generally charging higher while software generally dives lower.
But when we get a rotation and the losing software stocks power higher like they did today, they do so with a level of ferocity that makes you feel like the decline's got to be over. Of course, it feels that way every single time. Yet, the rotations never seem to last. Of course, in any given day, there are tons of other sideshows. Healthcare, restaurants, and foods tend to trade up together, as we saw today. Contractors, machinery, and builders trade down as we saw today, too. Then there's the 52-week low stocks, the pummeled ones that tend to rally with the software contingent, damaged stocks that momentarily levitate. And then there's everything else. Why is it like this? How can there be such whippy behavior?
Because people, there is no conviction whatsoever. These stocks keep being whipped around thanks to various ETFs that treat stocks like playthings. Even some of the largest stocks like Microsoft, like Nvidia. I know it sounds ridiculous, but many of these stocks will go up or down on what we call nothing, meaning small buys from ETF managers who, with their orders, just jar the whole market. So, what should you do during a rotation like we had today? Well, of course, you can sit on your hands. But here's something I like to do. I introduce you to a way to make some money. You go to your machine that you use for stocks. You query it for the top 10 largest losers in the S&P. If you like any of them and they have strong balance sheets and good businesses, but the stocks are on sale nonetheless, then well, guess what?
Let me walk you through the process that I did today. First you need to decide whether you're a believer in the hardware thesis or the software thesis. The hardware thesis is all about the making of artificial intelligence, both training and inference. The software thesis is about companies like Salesforce, ServiceNow, Workday, and Adobe — software and enterprise software, software as a service — all beaten-down stocks that trade together as part of a basket. The software stocks are wildly emotional traders. They've been trounced for ages and are trying to bottom. But if you have been betting on a bottom in these things so far, you've been crushed. Each time we get a day like today with the software stocks making giant moves, people are convinced that it's real. They look at ServiceNow up over 8% on a buy recommendation from Bank of America and say it just has to be done going down. It's down 32% for the year, for heaven's sake. Or they kick the tires of Salesforce, which is also down 32%. I think perhaps it's bottomed because BofA actually started its research on Salesforce with a sell and it rallied 3% anyway. If it weren't for the centrifugal ETF force that took it up, I might say it's done going down too, but I just don't know. I recognize it always feels compelling to bet on the underdog, or what you might call them, bottom feeders, than to go for the otherwise winning stocks that just so happen to get hit very hard today. But I want to buy winners on a momentary slide, not losers that may just be resting before the next decline.
So I go down the list of stocks in the S&P 500 that are down the most, and see if there's anything that kind of strikes my fancy. Incredibly, many of today's market's worst performers were indeed linked to the data center. Ginity Electronics, a materials company used by chipmakers, is down 5%. We own this one for the CHIPS Act. It had a parabolic move even after this pullback. I think it's too expensive for the moment. Comfort Systems is a heating, ventilation, air conditioning company with plenty of data center exposure, but it's a $1,854 stock that's nearly doubled year to date. I'm not messing with that one. Western Digital's down nearly 5%. It's a memory stock that trades at 46 times earnings. That seems too rich to me. The fairly similar Micron sells for less than 12 times earnings and it seems compelling, down 6% today. I've been waiting for Micron to come down. This may be the opportunity.
Next, there's Corning, another data center trust company with another parabolic move. It's got to come in more than just down 7%. The beatdown's not enough to entice me to buy, or at least buy more of it. Sandisk, that stock's up more than 3,000% over the past 12 months. Even up here, it only trades at just 20 times this year's numbers, but that may be too expensive. Versus Micron, got to let it come down more than today's 5% decline. Seagate again, too pricey, nearly 50 times next year's earnings estimates. These are commodity companies. Vertiv had an amazing quarter, the best backlog of any of the data center stocks, but at 53 times earnings, I got to say no thanks. Finally, there's Regeneron, which got blasted by a poor result on a metastatic melanoma cancer trial. I, along with many others, thought that this trial would succeed. You can't buy a drug stock that falls that much on the first day of the decline. Most analysts seem to have keyed on this drug to recommend the stock. It's damaged. There could be some more downgrades. So, what do you do? As someone who's always looking for bargains, I think Micron's the only possibility that I heard in that whole list. It's the hardware stock that can most easily turn itself around for the next move higher. I'd buy some right here and then wait for another, say, two to three percent decline to buy more. That's how I get started. Bottom line, I just showed you how to use a rotation to buy something, not aggressively, but gingerly on the way down as we wait for all the variables I talk about, especially the endless back and forth about the war and about the Strait of Hormuz and nuclear materials to play out. We got to find out whether President Trump's inability to bend Iran to his will is ever going to end. Caleb in Texas. Caleb.
Hey Jim, how are you doing? Hope you're having a terrific Tuesday.
Well, it's kind of more of a Monday feel to it, frankly. But what's happened with you?
Yeah, that's all right. I mean, look, time passes so quickly. So, this is what I was thinking of right here. What I wanted to talk to you about, and looking at my notes, this is why I said Tuesday. So, last Tuesday, the FCC approved a purchase for this telecom company, for them buying about 50 megahertz of EchoStar's nationwide spectrum for roughly $23 billion to expand their 5G network. Now the project could require sustained capital and operating spends, adding pressure already to the high debt load if returns are slow. But the satellite coverage meaningfully could reduce dead zones and strengthen customer loyalty in rural and enterprise segments. And that company I'm talking about is AT&T. Do you feel like it's a good time?
I don't want to be in AT&T. And I'll tell you, I also am very concerned about rural. I'm very worried about Starlink. I think Starlink is, and I also think Leo from Amazon. Both of those are going to be considerable competitors to the rural part of a company like AT&T. But thank you so much. I think you've got a good thesis, but I trump it with mine. I'm sorry. All right. You have to use rotation to your advantage. If you're going to just sit there and look at it, you got to think about what to do. Buy things slowly, even gingerly, until all the variables settle down. Use wide scales. Oh, man. Tonight, I'm sitting down with Intel's Lip-Bu Tan in his first interview as CEO of this storied chip company. Don't miss my wide-ranging exclusive interview where we get into the turnaround of this American icon, the state of US chip manufacturing, how Intel's investing in America, and more. Oh god, you do not want to miss this interview. Stay with Cramer.
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A little over a year ago when Lip-Bu Tan was named CEO of Intel, the stock was sitting at around 20 bucks. Now, after major cash infusions from the federal government and Nvidia and some fabulous earnings surprises, it's a $18 stock. One of the greatest turnarounds I've ever seen. And as we spotlight the companies helping shape the next chapter of American innovation, Intel's become a major part of that story. Lip-Bu is friendly with pretty much everyone who matters in the industry. He told me, for example, that he talks to Elon Musk once a week, engineer to engineer. Meanwhile, Intel's high-end CPUs are now essential for the data center at a time when there are chip shortages all over the place. Intel's been building out its domestic manufacturing capacity, exactly the kind of investment in American industry we're focusing on in our Invest in America 250 Years of Innovation series. The most recent quarter was phenomenal and they still can't keep up with the demand. Earlier today, I had the chance to sit down with Lip-Bu Tan for the first time and discuss how he's brought this great American company back to life. Take a look.
Lip-Bu, first, it is an honor to have you here and you have done something that most people thought was impossible. You have turned around and saved a national treasure that is Intel. How'd you do it?
First of all, thank you so much for inviting me to be here, and in a very humble way, I take steps in terms of improving. And the main reason I joined this company to be the CEO is an iconic company is so important, like you describe, a national treasure is so important for the United States. And I decided, even though I don't need this job, I decided to come in to save the company and also good for the United States.
One of the first things you did is very atypical of a CEO. You decided to canvass the workforce. Very few people want to know what rank and file do, but it's worked for you.
Yeah. So I think the main reason I changed that is basically focus on the culture of holding people accountable and also drive results, the best product, delight the customer is very important. And so with that, I think I used to have 12 layers of the management team, I bring it down to five layers. And then the other part is not just the middle management, you know, it kind of slows decision making. I want to have that removed so that we can hold people accountable and drive results, focus on the best product development and also delight the customer. And that's a culture change.
Sure. Now, you also had to fix the balance sheet and you did get some help from the White House and the federal government. How did that come together?
Yeah. So first thing I do is I focus on the balance sheet, and the balance sheet is critical. And initially I talked to some of the talent to bring on board. They said that Intel is a bankrupt company. Why would I want to join you? I love you, but I don't want to join. And so I decided it's very important to address the balance sheet. So I'm delighted, you know, President Trump and Howard Lutnick supported me to be an investor. We used to have a five-year milestone to that CHIPS program, and then they decided to all up front to give me the money so that I can strengthen my balance sheet. And also my good friend Jensen Huang, and he, besides doing R&D engineering engagement together, and then he said, by the way, Lip-Bu, I'm going to give five billion to you and support and help you. And that meant a lot to me. And of course SoftBank, Masa, an old friend of mine, I used to be on the board of SoftBank, and then he said, Lip-Bu, I'd like to support you and also put two billion in, so strengthen my balance sheet, and then so that I have a chance to recover from the, you know, the revenue and gross margin and profitability, so that I can really build from there.
Now, I think people will be listening saying, 'Well, what did this man do that he warranted that?' But you took over Cadence at a bad time, and you gave Cadence shareholders a 3,200% return, almost inconceivable. You were able to turn that around. I think other people felt that if you could turn around Cadence, Intel, not so hard. How did you turn that one around? I know that one was very mired.
Yes. So I think back to Cadence Design, and I was asked to step in to be the CEO, and I promised to be interim CEO. First of all, I've never been the CEO before, and I'm not even talking about turnaround. So it's a new experience for me. I remember the head of the chief people officer said that the book is a three-book for you to read, 'The CEO for Dummies'. So I read every page of it, make sure that I do it right. But good news is basically you don't have that legacy of old history. So you are open-minded, listen. In fact, I still remember the first day on the job, I have an all-hands meeting. I ask anyone have any good idea, reach out to me. I received thousands of emails, and I promise them I will respond to each email. And it turned out to be a challenge for me to do that. But good news, if people are surprised I respond, I also reach out to their cubicle to talk to them. Some of them dropped to tears that in the past you send an email to the CEO, never hear anything. But that's how to change the culture, and then listen to the customer, listen to the employee, and then formulate something that's meaningful for the company. So long story short, that company I done well, and then from the interim time is $242 I took over, and then I really built that business. The rule of 45, I accomplished that, and then beyond that. And so in some way I create shareholder, you know, return value. So when I apply to Intel, same thing. I try to do that, and then we try to recover first, and then listen to customer. And some of the customer tell me that, 'Lip-Bu, this is so horrible.' And then not only listen to us, they lecture us. And I said, got to change. And then so I listen to them. He said about this 14, 15 areas you make mistake. So I take notes on every single one. I'm a good listener. Then I respond back to that 13, 14 points how I'm going to correct that. They kind of build that in the long-term trust with the customer and delight the customer. That's most important.
Now, early on, you've always really moved to a different drummer. You understood hardware. Everyone was going software, but you went hardware. Now, that's very iconic. How did you know to go hardware?
Yeah, it's very interesting. I still remember 20 years ago, semiconductor is not popular at all. I went to some of the tier-one venture firms, I talking about semiconductor, then half of the team partners left. They only left with two people kind of sympathetic to listen to me. And by the way, do you have any software service company? And so in a way it's kind of being a contrarian. That's why, you know, I formed Walden International. Walden is a tool book about being a contrarian. That's why I learned that I decided to commit to the semiconductor. And I still remember some of the investors at Walden named me one semiconductor that over one trillion. And that time, you know, Jensen is not one trillion yet. And so it's kind of happy to see, you know, Jensen, my good friend, is 5.7 trillion market cap and the most valuable company. And so in some way I kind of happy to see that semiconductor come back in cycle and become hot industry again. And that time I was thought that, you know, I talked to some of the customer, all this application without the semiconductor, you had to, you know, shut off some of the apps. And so semiconductor is critical. Now people realize the supply chain, the memory, the CPU, and all these are in big shortage. And that's why I think it's delighted to see semiconductor starting to rise up again.
Well, Jensen is adamant that you saw AI coming before everyone, before ChatGPT. How did you know it was going to happen?
Yeah, so I think, you know, it's just by accident. And, you know, I kind of a lot of good friends of mine in the industry mentioned about the internet and the next thing is the AI. And then AI is not new actually. It's more because of the data become massively available. And then AI you can really drive, you know, the better application and drive efficiency. And now they're moving to the next stage is agentic AI. It's all the agent doing the work for you. So that you are not just doing the search. Now you can do things and predict things and then anticipate what will happen. So that will be more application. The next frontier are going to be the physical AI. And that mean that you're going to meet a lot of agents, a lot of digital worker. And this is changing the whole application. And that's why I think it's very exciting for me. Sometime in life you want to have some breaks. The big break is the CPU become sexy again. And everybody asking for more CPU for reinforcement training and for managing all the agent. And that's why the big shortage of the CPU now.
All right, well we're going to talk about that shortage, what it means for shareholders in a moment. This is Lip-Bu Tan. He's the CEO and the amazing turnaround that he engineered at Intel.
Coming up, Cramer's digging deeper into the comeback at Intel and how the company can continue its rise with CEO Lip-Bu Tan next.
Can Intel keep flying after its remarkable 400% run over the past 12 months? Before the break, you saw the first part of my sit-down with Lip-Bu Tan, the turnaround artist CEO of Intel, who's orchestrated this incredible comeback. Here's part two of our discussion. So, Lip-Bu, let's talk about Intel today. I had always thought of Intel as a company that puts PCs together. You're the key part of PC, and I know PCs aren't doing that well, but that's really not the story anymore. It is the agentic that you mentioned earlier. Can you explain how much of a data center was, say, what you were doing versus the GPUs of Jensen and how that's changing the mix is going your way?
Yeah, so a couple of things. First of all, our main business is a PC client that you know very well, the Intel Inside. And so I think clearly that part is still very important for us. And in fact, agentic AI is more moving into the edge and on-premise on the laptop and PC. So that play really strong to me, and we have a big lion's share of that. And then the other part, we just announced the Panther Lake, right? And that's something that is really designed well. And the power in terms of the PC can last longer hours and the performance very well. At CES we launched that, and then we have 200 design wins. And so it's really good product. We're catching up and actually better products now. And the next we move on is the data center and AI. And the data center right now, we in the past we made a lot of mistakes, and now we correct that mistake and we simplify the roadmap. By the way, from day one I came on board as a CEO, I have all the engineering report to me. So in a way I understand here the customer where are the... No. And so in a way, you know, they have too many silos, too many people leaders reporting, and even they'll come to the CEO, but they are not paying attention to it. So I decided the best thing is to really understand where the problem is so that I can focus on the engineering, how to redesign, simplify the product, and then get the real killer product come out.
Is that why Google has chosen you as a critical partner?
Yes, and then Google is a very important, there's a winner. I always have the belief work with the winner, and then so it's really supporting the winner to be even more successful and be partner with them. That's my trademark. I always want to delight the customer. I pick customer partners so that we can work and helping us and helping them to be successful is a win-win situation on that. So some humility and listening is very important skill to have as a leader. And then the other part on back to the data center is something that we used to have a leadership in that, right? And over the years we lost it. And then we make some big mistake like multi-threading and we lost it. And so I try now to bring that back, bring the talent back and refocus a product like Clearwater Forest will be the multi-threading and will come out very strong. So I think we are working on that. And the other part is very beneficial for me is I have the advanced packaging and also the foundry that we can bring that together.
I want to talk about advanced packaging. Was your bailiwick, that was not really a factor for Intel, but on your last call, your excellent CFO, Mr. Zinsner, he was talking about how it's going to be, it could be billions. It was supposed to be hundreds of millions. This was shocking to people.
Yes. And in fact, you know, our technology is called EMIB. This is the next generation of advanced packaging, and that we have the really the best technology. And now we try to make sure that we can bring it into a volume production with reliable yield. So the customer can count on us. And in fact, the customer, a couple of customers even prepay some of the subscription for me. And because right now subscription is become a very tight supply chain, so I need to put money to secure the memory, this material. And then right now the customer support me to pay some of the advance. That means show that commitment to me. So that means that's very exciting. And also I think the cohorts and then the technology and the capacity, they run our capacity. So in a way we become a unique position to support that. And I think that's something that we are very excited.
Forward thinking. Now let's talk foundry. This is something I'm concerned about. You've got the balance sheet in the right place, but this is a very expensive business. And will you have customers besides yourself? Because I know that's important for the supply chain in the United States.
Yeah, I think the foundry is very important. Actually, it's one of the key national treasures because 90-plus percent of the most advanced processors is manufacturing outside the country, right? So I think it's important to bring some of them back. And then when I took over, the 18A, the yield is not good. And I had to ask some of the ecosystem partners to help me to look at the data, how to improve the industry standard. The best practice is to see seven or eight percent yield, right? Improvement per... And now I'm seeing it. And then the other part is supposed to be at the yield performance defect density, you know, at the end of the year to see that particular target. And now I was so happy now I see that before even the end of the year. So that is a very big encouragement for me. And also that's why Panther Lake we can ship in volume now. And then now some of the customers starting to knock on my door and say, Lip-Bu, now we hear that you're making great progress. Can you also open up for outside customer to do that? And that is very exciting.
But the old Intel, the yield was they almost threw away nothing, maybe the first couple months, but that people have realized yield is your specialty too. That's how you get the gross margins up.
It's a lot of hard work. It's a lot of teamwork, a lot of talents I brought on board to help. And then the other part is also very important. In order to serve outside customer, you need to have the right IP to support them. And so, like for example, if you are in the mobile-related products, you need to have the low-power IP, right? Without that, you cannot serve them. So it's a service business. You need to build the trust with the customer. You have all the right IP. You have all the right yield and defect density and cycle time. So that this is a lot of responsibility if they're going to count on the revenue depend on your wafer. You got to have that yield performance is a big commitment from us to serve them. Right. So something that I take it very serious. I want to build the trust with the customer. And good news, some of the customers, they know me from Cadence days, so they know they can trust me. And I work really hard to meet that. And then the other part, the most advanced is 14A. This is 1.4 nanometer. This is the most advanced. And then to be candid with you, 2028 we will have risk production. 2029 will be volume production. It will be the same time as TSMC. So that is a major, major breakthrough. And so I'm excited. And we already have multiple customers engaged with us. We have 0.5 PDK available.
I did not know this. I did not know that you have multiple customers all set with us. Well, this is good. I know you are great friends with Taiwan Semiconductor, with the brilliant people who run it. But I do, do you think the government is right to be able to be concerned and have a supply chain in the United States just because of all the stuff they were talking about last week in China and Taiwan and Taiwan's independence? It's a very convoluted situation. So you share the idea that the United States should be making things here.
Yes. And in fact, I was very glad that President Trump and Howard Lutnick, Commerce Secretary, understanding the strategic importance for the United States to have that. And they approached me and supported me. That is valuable to me. And then because this is an infrastructure buildup, and it's so critical for the country to have the technology, R&D, development, manufacturing in the United States. And that's why the main reason I came back in as a U.S. citizen to do this calling to do that. And we're looking forward to serve them.
Now, do you keep the president up on how things are going? You do.
From time to time I update President Trump and also Howard Lutnick. And you know, they are big supporters of me. And so we are delighted to have them support me.
Now, the last quarter was quite a surprise because I think a lot of people don't realize all the things that are coming together. Now, you did say, though, you made it very clear that you expect double-digit decline in PCs. Can things happen fast enough in foundry, in data center, that we won't, that we'll be able to overlook that decline?
Yeah, good question. So right now, as I mentioned earlier, CPU is highly demanded, right? And that's a good part for me. I cannot even ship enough to this customer. And in fact, used to be CPU to GPU ratio for training is one to eight. And now, and now because of the inference and the generative AI and then, and more agent that you have to manage orchestration and reinforcement learning, CPU actually better. So that become one to four and one to one. And maybe some people even talk about four to one. And so that's a huge opportunity for me to really drive the CPU requirement. And the other part, we also have the AI strategy coming up. We have a commitment partnership with SambaNova that I was earlier investor. And then now we are going together with the XPU from Intel and the SambaNova data flow architecture actually is driving better performance and lower power. That is critical. So in that way we can support the customer.
Do you have enough CPUs? Are you possibly able to meet all that demand? Because that would be monstrous how big that would be for you. You have it.
No, actually you have to take steps because overnight, give you one example. I have one customer said, Lip-Bu, we'll give you the forecast for this year, but we want to increase three times. And I say I can't do it overnight. You give me a few quarters, I will catch up on that. Okay. So I think, you know, this demand is not the short term, it's the next couple of years. Now there's great opportunity.
