Mad Money 01/06/26 | Audio Only

Hey, I'm Cramer. Welcome to Mad Money. Welcome to Cramer, my friends. I'm just trying to make a little bit of money here. My job is not just to entertain, but to put it in context, to, you know what, educate. So call me 1-800-743-CBC. Tweet me at @JimCramer.

The beginning of the year, a wildly emotional time. What do you got? You got the rhyme cowboy crowd that likes to stick with the stocks with the best momentum from the previous year. Then there's the hope eternal contingent that goes for the underperformers, stocks crushed by tax-loss selling, by the way. And you've got people who buy the mistaken stocks, perhaps the ones that should never have gone down to begin with. All these buyers are coalescing right now to give you a strong tape, with the Dow Jones Industrial Average going up 485 points today, the S&P gaining 62%, and the Nasdaq climbing 65%.

Right now, the rhyme cowboy folks are totally jonesing for anything that can help you store data. The AI revolution has caused an explosion of data, and the storage industry just wasn't ready, couldn't handle it. When you see stocks like Western Digital up almost 16%, SanDisk soaring 28%, Seagate climbing 14%, Micron jumping 10% in one session.

You know, this is a quintessential momentum buying coupled with short sellers panicking and trying to cover their short positions ahead of these buyers. Why do these stocks keep running? Because there is a shortage of machines that make memory chips for them. That's why you see the semiconductor capital equipment makers like Lam, KLA, and Applied Materials rallying too. When I say this is emotional buying, I mean it can get to be irrational as the greater fool theory takes over. But I've always known that this could happen. Do you know that more than 30 years ago, when I was a hedge fund manager, I bought 5% of Western Digital, betting this kind of explosion could be on the horizon? I was diligent. I called around, checked pricing constantly, didn't miss a data point. But I failed to keep track of how many components in the industry, that so many companies were spending on capital equipment that would let them manufacture more hard drives.

Turns out that as supply tightened and prices went up, the hard drive companies spent a fortune, built more capacity, and then massively overproduced, flooding the world with excess hard drives. I didn't see the deluge coming. So once all these machines started spitting out all these drives, pricing plummeted, and I took a bath in Western Digital. Right now, though, the demand is so voracious that even as Lam, KLA, and Applied Materials are running flat out producing these machines, Western Digital, Seagate, SanDisk, and Micron, well, it's not enough. They can't get enough. Demand can't be sated. Pricing is going up so much that their non-data center customers, mainly PC makers, are getting killed. It's a nightmare for the users, but it's nirvana for the shareholders. At least until the capital equipment makers catch up, and they do always catch up. But the short sellers, they haven't caught up fast enough. Short sellers know this, but they have a bad sense of timing, which is why they keep going in to challenge these stocks, and they keep getting their heads handed to them. The rhyme cowboys are winning so far in 2026. These stocks are up so much that some fund managers have already made their years, and it's only the third day of 2026 trading.

It's not just the storage companies. The banks have come in with a full head of steam. They're simply picking up where they left off in 2025. The loosening regulations coupled with the rise of M&A and equity issuance can explain these remarkable runs. Here I'm thinking about the gains in Goldman Sachs, Capital One, Citigroup. I know they seem excessive, but you have to recognize that the financials had been punished for almost two decades. Before the Great Recession, lots of banks had price-earnings multiples that were actually like a lot of other stocks, the S&P 500. But valuations collapsed as bank failures dominated the headlines, and then securities regulations tamped down the growth of the group to prevent another financial crisis. That's all changing now. So the banks are seeing their price-earnings multiples expand. They still have a lot to grow before they become fully valued.

Then there are the hope-springs-eternal buyers. I see a bunch of these stories, and I'm involved in some of them for the Travel Trust. Stocks like Nike, like Starbucks, which have seen their share price just obliterated by the poor performance of previous CEOs. I see green shoots in both these companies. And their strength, I've got to tell you, their strength this year so far reflects a real rebound. The three insider buyers of Nike — the CEO, a board member who was the former CEO of Intel, and of course Tim Cook, CEO of Apple — all signal that the business is indeed turning. Remember, insiders might sell for a lot of reasons, but they only buy because they think a stock's headed higher. Longer term, they can't flip.

As for Starbucks, I think this is the year it comes back, but I have to tell you that it's been a tough run for CEO Brian Niccol, late of Chipotle, as it seems like the Seattle-based coffee chain was far more broken than anyone realized. Lots of poorly performing stores, many of them are being closed. Big execution issues, those are being fixed. Miserable throughput, that's already been fixed. I think everything is changing for the better. I'm also seeing rebounds in some underperforming industrial stocks that are not part of the data center business, which therefore made them uninvestable in 2025. These were beaten down because they lacked AI-related momentum. I'm talking about a Honeywell or two conglomerates, with Honeywell currently undergoing a breakup. They've been laggard performers, but hope springs eternal, even from me, that they'll get these right this time. That's why we're approaching that with a positive attitude for the Chapel Trust.

Finally, there are stocks that never should have underperformed to begin with. Now, these were cases of what I call mistaken identity. Chief among them is the stock of Amazon. This hyperscaler, one of the greatest companies in history, saw its stock pull up barely more than 5% in a year where the S&P was up 16%, Nasdaq 20%. When last Amazon reported, the stock soared from $222 to $254. Oh, it was a huge move. But it then proceeded to give up the entire gain and became a laggard again. The stock's decline convinced people there must be something terribly wrong with the business. But it sure wasn't from its incredibly lucrative Amazon Web Services business, which is starting to reaccelerate. It wasn't from its retail business, which was amazingly strong. The advertising business, total gravy, exceptional. So what went wrong? I've looked and I've looked and I've looked, and I reread the conference call from the last quarter, saw all the contemporary research notes before I came out today, and I am telling you there was absolutely nothing wrong. Nothing except perhaps an expectation on the part of some that retail sales might be weak, which they weren't. So now Amazon's playing catch-up based on the mistaken identity that it was a loser. It never was.

Of the three categories, you should know I prefer the mistaken identity investments to the momentum stocks and the resuscitation stocks. But this market likes a wet January, not a dry one. And I expect the emotional trading could last a little bit more, as the year just started. Here's the bottom line. We've seen these trends last as long as 10 trading days into the new year before we've gotten even a sharp correction. It wouldn't surprise me if that happens again. So if you have big gains, say in Seagate or Western Digital or SanDisk, please don't be so greedy. It's time to ring the register tomorrow morning on part of your position. Meanwhile, I say hold on to the turnaround stocks and buy the mistaken identities because they're the ones that should keep running as we go further into the new year. Let's take calls. Let's go to Ian in North Carolina. Ian?

Real good. Oh, happy new year to you, Ian. What's going on?

No, it is. It's really fantastic. Congratulations to Mark Cuban, who was with us as a guest when we went to Indiana for such a great school tour. How can I help you now?

Well, you know, I've got to tell you, it's not my favorite right here. I prefer, as I say in How to Make Money in Any Market, I much more prefer the higher-yielding ones. I think ONEOK is better, and I really like Enterprise Products Partners here. I think those are better, more growth, better yield. Let's go to Preston in Maryland. Preston?

Same to you, Preston. How can I help?

Okay. Sweetgreen has decent revenue growth, but it just can't seem to turn it into a profit. They've got to start making money, I got to tell you, or else I think it is going to go even lower. The one that we like — it's a very hard group, just so you know — but we like Texas Roadhouse, which has been coming back big. And if we get any break in cattle, that thing's going up. That thing could go to 200. It's 177, up $2.64, say. And I like that one much more than Sweetgreen.

All right. Please don't be greedy. This is a good time to ring the register on anything that has shot up gigantically, particularly the storage plays, and maybe put that money to work in a stock that could make a big turnaround this year. Well, Mad Money tonight. As we step into a new year, I'm giving you my review of the Magnificent Seven stocks, starting with the top two performers that I think can keep tracking higher. Then I'm taking a look at the other five, which actually underperformed the broader market. Are they still winners, or is it time to cut them loose? On the reveal, my take. And with aerospace likely becoming a more dominant theme this year, I'm sitting down with the CEO of full-service aviation player AAR, which reported this evening, to find out more about the company's trajectory. So stay with Cramer.

Now that we've turned the page of the calendar to 2026, I want to talk about the Magnificent Seven. Like it or not, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla weigh in at roughly 35% of the S&P 500. For three years now, these stocks have been the entire ball game for most people, even if some of them occasionally fail to please the trading-oriented hedge fund managers.

In 2025, the Mag 7 still rallied 22% on average despite rolling over near the end of the year. Not as good as the past, but still better than the S&P's gain of 16%. Of course, that's down from a 111% gain in 2023 and a 60% average gain in 2024. At the same time, we're finally starting to see a little divergence in the individual performances here. Last year, for instance, Alphabet shot up 65%, but Amazon, as I mentioned at the top of the show, only gave you a paltry 5% gain. In fact, the outperformance here entirely came from Alphabet and Nvidia. The other five members of the Magnificent Seven lagged the S&P 500. Pretty amazing, isn't it? What's so magnificent about that? So let's take them one by one, because this feels like 2026 will be another year where individual stock picking is really going to start mattering. Remember, this is my big theme. Alphabet and Nvidia, I think, are going to be two huge outperformers, just like 2025.

Alphabet, the parent of Google, is now the third largest company in the world with a $3.79 trillion market capitalization. That's a little bit bigger than Microsoft and a little smaller than Apple. Nobody comes close to Nvidia in the number one spot at $4.55 trillion. I got to tell you, it does hurt me to see Alphabet as the best-performing Mag 7 stock last year because, like an idiot, I sold it for the Travel Trust. We threw in the towel last spring. At the time, it looked like this company was in big trouble. The consensus out there was that Google Search would be eaten alive by these new generative AI platforms of other companies. And more important, these guys had lost a big antitrust case the previous summer, with a judge ruling it was a monopoly in the search advertising industry. Another judge made the same finding last April in a separate case. This time it was about the adtech market. The stock kept getting hammered, and I just couldn't take the heat because I knew that Justice was gunning for more than just a breakup here. It wanted to hobble Alphabet like Kathy Bates does to James Caan in the Cramer-favorite movie Misery. And that's the real reason why the trust bailed on Alphabet.

But I spent the rest of the year regretting that move. First, it turned out that the antitrust rulings were much less of an issue than anyone anticipated. The same judge that called Google a monopoly in search decided that upon further review, the judgment was wrong. And not only that, but the company could keep paying Apple about $20 billion per year to be the default search engine on the iPhone. That was kind of a linchpin of the antitrust case. Alphabet didn't even have to sell Chrome, their web browser. I thought the judiciary was going to tear this company to pieces, yet that simply didn't happen. No misery here. How about those AI worries? Turns out you didn't need to be worried at all. You didn't need to be afraid of generative AI when you got the best platform. And that's what Google has with Gemini. Plus, there was never going to be any cannibalization here because Google just slapped their AI overview right on top of their search results page. Brilliant. They decided to make it two great tastes that taste great together. And hey, being the default generative AI platform for Google Search is a huge advantage. Who knows, maybe they're going to pay Apple to do it for that, too.

Finally, in November, as the rest of the AI complex started to roll over, Alphabet surged higher because that's when they released the latest version of Gemini, Gemini 3, which was almost instantly recognized as the best in the business. I use it constantly. Other companies even want to buy their in-house TPU chips that they developed with Broadcom, a stock, by the way, that is down big after an excellent quarter and I think should be bought right here. And look, that's just search and AI. Alphabet's got a lot more going for it. YouTube may be the most important and well-watched force in media. I love the NFL on YouTube. Just kind of an assertion there. Waymo is the undisputed leader in robotaxis. These guys even made some big advances in quantum computing. And don't forget about Google Cloud. That's their thriving cloud infrastructure business that competes with Amazon Web Services and Microsoft Azure. And many people think it does better than both.

Of course, the one thing you can't say about Alphabet anymore is that the stock is cheap. For a while last year, it was trading at a discount to the S&P 500, but it now sells for a nice premium. Still, the stock's not that pricey at 28 times this year's earnings estimates when you consider the growth rate. Given everything Alphabet has going for it, I think that's reasonable, which is why we bought the stock for the Chapel Trust. We bought it back again near the end of the year. I intend to make it a big position. I bet it keeps climbing in 2026. I was tempted to buy some even today for the trust when this stock was down almost five points. It closed down $2.22.

The second-best performer in the Magnificent Seven last year, and the only other member to outperform the S&P 500, was Nvidia, which rallied 39% even as the stock mostly traded sideways for the final few months of the year. This was a big step down from Nvidia's 200%-plus gain in 2023 and the over 100% gain it posted in 2024. Despite being the largest company in the world, Nvidia somehow still feels underappreciated to me. All four of the company's earnings reports last year were excellent, even if the magnitude of Nvidia's earnings beats have shrunk versus the last couple of years simply because Wall Street's no longer underestimating this company like it used to. That's where a lot of the big performance boosts came from. At the same time, Nvidia remains firmly at the center of the AI ecosystem with the best chips that money can buy and a software moat that makes it very hard for other semiconductor players, including Google, including AMD, to compete.

Today, Nvidia stock struggled again, and it finished down 88 cents after CEO Jensen Huang gave what I thought was a spectacular keynote address at last night's CES. That's the old Consumer Electronics Show, where he said demand remains extraordinarily high and his next-generation Verba chips are ahead of schedule. It's all on YouTube. These things have entered full production with shipments scheduled to start in the second half of the year. Jensen also devoted lots of time last night to discussing physical AI. Think robots. Think self-driving cars, which is a market that's rapidly growing. So yes, I still like Nvidia very much entering 2026. Own it, don't trade it. And that was the way we handled it, of course, for the Chapel Trust. Plus, as the calendar flips to the new year, the stock doesn't look particularly expensive at all. Nvidia currently trades at less than 25 times this year's earnings estimates. Wall Street anticipates nearly 40% earnings growth. That's a cheap stock. From the perspective of a growth-oriented hedge fund manager, it's insanely cheap. And if the past few years are any guide, Nvidia will once again beat the estimates, maybe trouncing them, meaning the stock will look a lot cheaper in retrospect 12 months from now, as is often the case in the last decade. It's confusing that the stock couldn't rally in Jensen's excellent keynote speech at CES yesterday. But like I said about Amazon last year, some stocks just don't react the way they should, and you need to have enough confidence in your own work to say that the market is wrong.

Here's the bottom line. I think the two outperformers, the Magnificent Seven's Alphabet and Nvidia, will keep winning in 2026. I'd buy them both right here. As for the underperformers, well, stick around after the break. I'll give you my prognosis. Mad Money's back after the break.

Now that 2026 has arrived, can the Magnificent Seven get their mojo back? Like I told you before the break, only Alphabet and Nvidia managed to outperform the S&P 500 last year. The other five underperformed. Let's talk about what happened in each. The third-best performer in the Mag 7 last year, Microsoft, was humming until late July. It peaked at 555 bucks. Then it started getting hit and failed to regain its old highs, finishing the year up just under 15%. Now I'm down more than 60 bucks. Ah jeez, I watch it go down every day. It's crushing me. I think Microsoft's doing fine. But when they reported in late October, their guidance for Azure, which is their cloud infrastructure business, came in light, possibly because of supply constraints, which would be good. Plus, after previously saying the capital expenditures growth would be lower in 2026, management reversed course and told us that that would no longer be the case, which was just plain bad.

At the same time, the stock was also held back by Microsoft's heavy involvement with OpenAI. Now, they own 27% of its for-profit business, which could be worth more than $100 billion, maybe more than that. On top of that, OpenAI is committed to spend $250 billion with Microsoft's Azure over the next several years. But lately, a lot of people are worried that OpenAI might not be able to pay its bills, which would be a real problem for Mr. Softy. Going forward, I still feel pretty good about Microsoft, especially if OpenAI can raise money at a valuation that's close to the $800 billion number that's been rumored. Now, I have to tell you, as opposed to the end of last year, I am growing more and more confident each day that that will be the case, that OpenAI will not be a problem. It will not be the Achilles heel. Plus, I'd love it if their Azure business can outperform the recently lowered guidance. Look, if Azure can put up growth closer to 39-40% than 35, then this stock could really roar. I am a believer in Microsoft, which is why we own it for the CNBC Investing Club. It is really a long-standing position.

Next is Meta Platforms. Yes, it gained less than 13% last year. Wow. Now, this is another company that looked like a sale board for most of 2025, but pulled back hard after its latest quarter in late October. Just like Microsoft, Meta stock rolled over on management's forecast for higher investment spending. They're still spending fortunes for AI. Their capex budget for last year should come in at $70 to $72 billion. And CFO Susan Li said the capex dollar growth will be notably larger this year. So maybe $70-72 billion goes to $100 billion.

On top of that, Meta doesn't have, to me, a clear AI strategy. They don't have a leading generative AI platform that can compete with Google's Gemini or OpenAI's ChatGPT. They don't have a cloud infrastructure business that can rival Amazon, Microsoft, Google, or even Oracle. Now, does it matter? See, I am a big believer in this technology, but it would be great to have more clarity on what Meta is doing with it beyond making better targeted ads, which they are the best at in the world. Of course, Meta is still dominant in digital advertising, and between Instagram, Facebook, and then don't forget WhatsApp, they have a massive user base, which gives them a gigantic advantage. Plus, I have a ton of confidence in Mark Zuckerberg. That is why we still own it for the Chapel Trust. Big position.

Oh, and to be sure, I don't think Meta will have to spend all that much more than what people think it will, because I think it's going to be hard to spend that much. I think Zuckerberg will blunt any inroads OpenAI might be making on social. He can crush them. But there's a power gate. I call it power gating. It's just really hard to spend as much as you'd like because you can't build as much as you want — labor, materials. So I think he'll be constrained. I think it's going to be positive for you if you own the stock.

In fifth place was Tesla, which was all over the map last year, but only used a late-year rally to finish 2025 up over...

11%. Tesla remains an enigma. The core electric car business, I'm calling it awful, down for the second straight year. Earnings are down about 60% from their peak in 2022. But you know what? It doesn't matter. Pointing that almost feels like a waste of breath because the investors in Tesla, they do not care. CEO Elon Musk is a great business person, an even better sense of showmanship. So he's got everyone focused on the future opportunities in robo taxis and humanoid robots. Those cars are on the road in Austin, Texas. And by the way, those are the cars we care more about than the sedans you might buy. In the end, Musk needs to make progress on both these fronts to keep shareholders happy. Although it sure wouldn't hurt if he could stabilize Tesla's auto business, but it won't matter to some of these bulls who know that Musk's robot initiative may be the best thing going in that space.

Apple's next up. It's less than 9%. It only went up about 9% last year. Uh, this one's different. Apple stock was beaten down in early 2025 because of the same worries we always hear about. Can their growth be accelerated? Will iPhone sales be weak? Will the China business ever turn around? And of course, last year, we also got the tariff worries with President Trump going after their two key sources of manufacturing, China and India. Ultimately, Apple took those tariff concerns off the table by announcing a massive domestic investment agenda that won the company some key exemptions and won over the president. And the stock came roaring back. Apple also helped itself by posting several strong quarters with sales growth accelerating over the course of the year. But what really got this stock going this fall was the iPhone 17 launch. We all heard it was going to be weak from Wall Street over and over and over again. It was a huge hit. Plus, when Wall Street decided to start worrying about all the spending on AI data centers, the guys at Apple suddenly looked like geniuses for not getting involved in this game. Remember, people thought they were doubters before this. You know where I come down on Apple as always? I say own it, don't trade it, like we do for the CNBC Investing Club. I think the strong iPhone cycle can continue. And it wouldn't surprise me if Apple can sign a big deal to get billions of dollars in exchange for making some generative AI platform the default on the iPhone. Hey, maybe it's Alphabet's Gemini. Makes a lot of sense. Stock has quietly pulled back over 9% from its early December all-time highs. Currently trading at 32 times this year's earnings estimate. It's not cheap, but I think Apple deserves a premium multiple given how great it is.

Finally, there's Amazon. Another charitable trust name in which I talked about earlier in the show. It finished last year up just over 5% here too. Muted overall performance missed some very positive things. When Amazon reported its latest quarter at the end of October, that was a major positive catalyst as their web services business put up terrific numbers. I was worried about growth accelerating to more than 20%, the highest level since the third quarter 2022. I feel very good about that business after speaking with Amazon Web Services CEO Matt Garman about a month ago. I don't know if you heard him when he was on the show. He was terrific. On top of that, Amazon made a big investment in Anthropic, one of my absolute faves. They're already using AI and robotics to enhance the retail business. I was on Rufus maybe 20 times in the last three days. Rufus has really improved. Uh, and I got to tell you, Anthropic is great. It's a business-to-business service. It's going to be wildly profitable very soon. The retail business continues to do well with double-digit growth both domestically and internationally for the past two quarters. Yes, Amazon still spending heavily on AI infrastructure like many of the Magnificent Seven compadres, but it's very clear how these investments can directly make them money.

So, to me, that spending is easier to swallow. I'm looking for Amazon to put up much bigger gains in 2026. And it seems like I'm not alone because I mentioned at the top of the show the stocks were nearly 5% over the past three sessions. It's been magnificent. Here's the bottom line. Even the laggards, the Magnificent Seven, have a lot going for them, which is why we own six of the seven for the charitable trust. As I say in my new book, How to Make Money in Any Market, they are still the best companies our nation has to offer.

>> Gary in Missouri. Gary,

>> Okay. Well, this is actually involved with the debt side of Oracle. They had to borrow a lot of money to be able to build out all these data centers they went to. Then people got increasingly worried that maybe one of its largest clients, OpenAI, won't be able to pay for that. Now I'm taking that off the table. I don't want to buy Oracle because I'm not really sure about their business model, but I would take off the table that the stock hits 26 times earnings. If it got down a little bit more, I would just tell you to buy it. Let's go to Craig in Missouri. Craig,

>> I get up at 2 a.m. to listen to their conference call. It's magnificent. They really know what they're doing. Why do I not own it for the charitable trust? Well, frankly, it's because we own Nvidia, which is, you know, one of the largest clients, probably arguably the largest, and I don't think there's a need to own both of them, but Taiwan Semi is a very good company. Nvidia's got the same Taiwan risk actually as Taiwan Semi to some degree, although obviously one's located in Taiwan. All right. Yes, the Magnificent Seven has its laggards, but I think even they can be winners, which is why we own six of the seven for the charitable trust. You can always look up what we have when you join the club. I hope you do. People like it. Now, there's much more ahead, including my exclusive with AAR Corp. As aerospace takes off, I'm sitting down with the CEO, fresh off of what looks like some dynamite earnings. Then, could 2026 finally bring us a turnaround in the consumer packaged goods stocks? There's one way for them to be more than good in this environment. I'm revealing how they can become great, and all your calls rapid fire in tonight's edition of the lightning round. So, stay with Cramer.

>> Aerospace. It's become one of the hottest themes in this market. And because neither Boeing nor Airbus can make new planes fast enough, the airlines need to spend big to maintain their existing fleets. Which brings me to an old friend of mine, AAR Corp. An independent provider of aftermarket parts and services for both commercial and aviation government customers, too. These guys reported after the close today. They delivered higher-than-expected sales, a 15-cent earnings beat off a dollar-three basis. Management also raised its full-year organic sales growth. That's the one I really care about. So let's take a closer look with John Holmes. He's the chairman, president and CEO of AAR Corp. to learn more. Mr. Holmes, welcome back to Mad Money.

>> Oh, well, I'm thrilled you're here. Uh, just once again delivering fantastic numbers. Uh, can you quantify the demand environment that's allowing you to get really great sales? Because I know how great you are with trying to convert those sales into free cash flow. So maybe just give us a rundown of where we are right now.

>> Now I want to talk about the software for a second, then we can go back because the software is very exciting to me. Uh, Tracks software. Yeah. Uh, I want to dig a little deeper in this because it looks like the revenue is growing pretty rapidly, and that may be the third leg of the stool that's probably the most exciting for our viewers.

>> Okay. So, how much of the recent margin expansion is into software? Because software can be such a great higher-margin business than just say uh providing services, as much as I love services.