Mad Money starts now. Hey, I'm Cramer. Welcome to Mad Money. Welcome to Cramer America. Other people, my friends, I'm just trying to make you a little bit of money. My job is not just to entertain, but to teach you about stocks. So, call me at 1-800-743-CBC. Tweet me, Jim Cramer.
Bubble momentum, greater fool theory, charlatans at work, or maybe just a case of what could possibly go right and what will continue to do so. Like so many investors right now, I'm struggling with these outside moves and in only one part of the market, stocks related to the artificial intelligence business. Like it or not, they're the real winners here. They're the ones that are moving this market.
Now I found in my career that people are too negative, too critical about the prospects of many companies that actually have a long runway of growth. That's why when I look at, say, an AI-related stock, I am a little more predisposed than most in this business to buy it. Rather than figure out what could go wrong, I like to ponder what could possibly go right.
Now if you're thinking like that, then this was probably a good day. Dow gaining 253 points, S&P climbing 0.58%, NASDAQ gaining 0.45%. Good gains, but not nearly as great as they were earlier in the day. I always like to point that out.
Now, I want to tell you in full disclosure that I'm borrowing this 'what could possibly go right' phrase from the excellent new business book written by my friend restaurateur Danny Meyer because I think it gets to the heart of the issue. Sure, we're not talking restaurants, but we're talking scale businesses. I think when I'm trying to figure out which companies could be part of the next AI wave, when AI is still very much about this market, I like to say to myself, what could possibly go right with that company?
Right now, this stock market is pretty much divided between the winners, which mostly relate to artificial intelligence, and virtually everything else, which doesn't sell.
Sure, there are some stocks from different sectors that are still investable. Eli Lilly and Moderna and the drugs, GLP-1 and melanoma shots respectively. Valero and Phillips 66 because of the shortage of refinery capacity in the midst of this war with Iran that's done serious damage to oil infrastructure. But sadly, that's really about it, and not all of them win consistently. Moderna had a horrible day today.
No matter what time frame you pick, one month, three months, six months, a year, it's the same stocks over and over again that dominate the winners. So AMD, SanDisk, Super Micro, Bloom Energy, CrowdStrike, Dell, Marvell. Do I really have to mention them all? You know them. You know them. Including the big hyperscalers like Meta Platforms and Microsoft which have come up with winning AI products.
I have tried my best both here and in the CNBC Investing Club to shine a light on these stocks, to buy them for my trust and share my positive opinions quite vocally. But I find that no matter what I do, there is still tremendous resistance.
So, how should we view this sector of the market that is providing almost all the gains? I think there are three different camps going here right now. We're going to go from least appealing to most appealing. The most damning view, which has some precedent going for it, can be summed up as just too good to be true. I mentioned last night that we like pattern recognition in this business. The skeptics recognize that this AI rally does look a lot like the wonderful run-up in the dot-coms followed by the horrendous crash in March of 2000.
I traded in that period. I started a company that soared and then crashed in that period but stayed alive. I challenge anyone who can match my dot-com credentials and my history. I think the vast majority of companies that IPO'd during that dot-com era were playing with free money from the public, from you. Not unlike the money being given to a lot of the companies involved in AI right now.
Those companies were all part of the great internet build-out which knew no bounds, just like AI right now. It turned out that while the internet was revolutionary, most of these companies were either pedestrian or premature, with the exception of Amazon and the not-yet-public Google. Everything else was trash. People lost fortunes owning chimeric companies, fraudulent enterprises, and businesses sponsored by venture capital that were just trying to dump them on the public before they went under.
The one thing these companies didn't have was profits. When the public money was gone, so were 330 companies from that vintage. Camp number two, it's secular growth, stupid. I wrote 'How to Make Money in Any Market' as an ode to secular growth. When you have it, you get money thrown at you. And when you don't have it, the money stops. AI undeniably has secular growth at scale.
Right now, we have a rising interest rate environment. It's very difficult for most companies to generate upside when rates are going higher unless they need no capital to thrive or capital is still flowing freely because the secular growth possibilities are so huge. Sound like AI? Everything else is either checkmated by rates or stuck in a rut of little to no growth, perhaps with dividends that are no longer competitive with the bond market.
The Fed chief's serious about crunching inflation. The president's serious about fighting Iran. The oil traders are serious about having enough crude to meet demand. So inflation doesn't seem all that transient. As a matter of fact, it's getting embedded. So we gravitate to a handful of stocks that can post strong growth in this environment with readily accessible capital. And most of those are tied to AI.
Today was power day, specifically nuclear power because Google signed a 20-year contract to purchase nuclear power from Constellation Energy. Constellation jumped 12%. Vistra, another utility with nuclear power, and GE Vernova, which makes nuclear power plants as well as gas turbines. They all had very big days, as is typical when a contract is signed like this.
On any given day, there can be too much enthusiasm for the AI cohort, at least at some point during the day. Today, they open too high. They shock us with higher earnings, even if no one's really shocked. But what they mostly do is grow without needing to borrow money for the most part. And that gives them an unstoppable quality in this environment.
That's what happened today with Marvell Technology, where CEO Matt Murphy raised his forecast for multiple years to come. Matt will be with us tomorrow on Squawk on the Street if you want to hear why he's so bullish on his company's data center future.
Finally, there's the third camp, which is the one I increasingly find myself in, and that's the aforementioned Danny Meyer camp, where you must ask, 'What could possibly go right about a company?' In this camp, you own stocks of companies that are run by really smart people who are aware of the opportunities of AI, and you think that they're actually going to figure them out and make a lot of money.
When Meta was at $530 a few months ago, I didn't think, 'Oh, what a bunch of chowderheads. They don't have anything going in AI.' I thought that Mark Zuckerberg and his dream team are brilliant and they're going to figure something out. That's exactly what they did with Meta AI, their agentic AI platform that's ideal for small business. Now Meta is at $738. That was easy.
When Microsoft was at $350 ago, I didn't think the best times were behind them. I said, 'Yeah, they're smart people. They're going to figure out this Copilot and with that Azure Web Services business, they're going to make a ton of money.' Well, guess what? They did. And now the stock's at $529.
AMD makes CPUs and GPUs. Lots can go right. Intel's building semiconductor foundries. We need more of them. And it has CPUs. Again, lots can go right. The gating factor for growth is safety. Cybersecurity. That's CrowdStrike. That's Palo Alto. When I query about 80% of the S&P 500 about what can possibly go right, you know what? I can't even think of anything for most of them. I can't.
Sure, that can change when the war ends. Until then though, the AI-related stocks give you most of the opportunity for something to go right, not the others. Now, you're welcome to say that the first camp is correct. It's a bubble. I don't agree. Bucket two is traditional security analysis. I like it, especially when secular growth scales or gets bigger and bigger.
But it's bucket three that intrigues me because of its power of elimination. Yes, I want to be diversified, and I certainly run a diversified charitable trust. But right now, the only thing that diversification brings is the power to dilute the good in some sort of weird Gresham's law abomination.
Regardless, I'm sticking with diversification because when I break my own rules, I tend to get hurt. Fortunately, the rules allow what we call overweighting, and because of that, a lot of things can still possibly go right with my stocks in the trust, but I want to stick with the AI data center plays as much as I can. Is it a bonanza? No, because the Investing Club charitable trust also owns healthcare, some retail, some financials, some special situations, and those are just tough sledding right now.
But the bottom line, as far as I can see right now, the only thing that can possibly go right for the non-AI stocks is a lowering of inflation and a decline in rates. But what could go right with AI? If you aren't asking that question, you aren't making enough money in this market. Let's go to Jeffrey in California. Jeffrey.
I'm doing well, Jeffrey. How are you doing?
Very good. Good to hear your voice. Listen, I have a question about Dutch Bros. I bought it several years ago. It went down, then it went up, and I was in the black. Looked very happy with it. Now it's down again below where I bought it. If I'm thinking about long-term, out a few years, is this a good stock to own or should I get out of it?
It's down 36%. I happen to like the business. There's a competitor that's come in very hard. And we also know Starbucks is coming, you know, I think is coming back under Brian Niccol. But at this price with a $6.8 billion market cap and now 36 at $39, I think you got a great place to start. The chart's horrible. Be aware people are going to be dumping it. If it goes down, it'll feed the fire. 39 then 36 then 33 is the way I would do it. 25, 25, and then in 30 I actually buy maybe 50 shares. Let's go to Rad in Texas. Rad.
Hi team. Thanks for taking my call.
Yeah. Hi, Jim. Thanks for taking my call. I'm 68 years old, retired, and I want to rebalance my portfolio a little. I'm looking at a long 10-year weekly chart of Waste Management, WM, and it seems like the stock found support at around 200. Is this a good level to add to an existing position for a long time?
Okay, so Jim, I actually went through this exercise just yesterday. I said, 'Oh man, look at this. It's finally off the 202 to go up to 207, 208. I bet you things are breaking out.' Then I looked and it's got a double top, blah blah blah. But I will tell you at 25 times earnings with a pretty decent growth and a good CEO, Jim Fish, I would put some on here, but remember it was just a little bit lower. Don't buy a full position. Put some on and then see if the market can take it down a little more. Let's go to Chuck in Florida, please. Chuck.
Hey Jim. Chuck from Boynton Beach. How are you?
I'm doing well. Looking forward to going to Boynton Beach in a couple of months. What's happening, Chuck?
Jim, I'm frustrated with a stock I got to ask you about. This stock had fantastic numbers in Q3. It's supposed to have even better numbers in Q4, but other than today where everything went up, it's hardly moved. I want to get your thoughts and forecasts for Broadcom.
Okay, Jeff Mars and I, you know, run the trust with me. We talk about it every day. I said, 'Can you believe it? Broadcom is up.' And he said, 'Yeah, it's finally going up. It's above where it was when it reported.' Now, what happens when you see that? And I got to tell you, Chuck, when you see that it's now above where it was when it reported such a bad quarter, it means the prospects are probably better. Don't sell it here. I did trim because we have so much of these, but I'm not going to sell the rest. I'd say ride it with me. Did a good analysis of it for the charitable trust very recently. Let's go to Mark in Texas, please. Marky.
Hey, this is Mark from San Antonio, Texas. I'm a first-time caller. I've been watching for about 20 years. And I thank you for all your wisdom, your teaching, and your books. I just need to quickly say, I just want to quickly really thank you for putting me on the Nvidia bug. I found a good place to buy it in April of 2020 and that's helped me become an IRA millionaire. So I owe a lot to you.
There you go. We want these Nvidia millionaires. I love to meet you. I love to call you. I see them on the street when I'm out walking around. I say, 'Out of Micron,' you know, people, some, I saw a guy who liked Micron today. I wanted to say to him, hey, listen, Nvidia during the breakout, but I'm glad you stuck with it. Too many people traded it. They didn't believe. They thought it was going nowhere. They were in and out and in and out like all this trading stuff. It doesn't work. You have to own. You can't trade. How can I help you?
Absolutely. Well, my question today is about a drone stock. Given that drones and their associated technology may be a big part of the future of defense, I bought about a third of a position in AeroVironment and I know you interviewed the CEO. The company's future appears promising, but I know that the defense sector isn't too bright right now. So what are your thoughts on AVAV?
It's, look, you said the right thing and the defense sector, it just doesn't matter. I'm very troubled with the defense sector. It's just another sector that had its day. That's how I feel about it. And every time I look at it, I think, you know what, I'm looking at yesteryear, even though you would think given the state of the world, I'd be looking at tomorrow. All right? There's always a case to be made for what could possibly go right. And that's what I try to focus on, particularly when it comes to AI.
On tonight, CVS shares are pulling back. Could this be a buying opportunity? Because boy, if the stock goes much higher, I'm going to break down the bear and the bull case. And even as the broader NASDAQ breaks record highs, some of these chip stocks are doing a lot better than others. Don't miss my analysis of one underperformer that could be the next to catch on. And I'm following up on a stock you called about that makes diagnostics for dozens of types of cancer. Don't miss my deep dive on Exact Sciences. So stay with Cramer.
Don't miss a second of Mad Money. Follow Jim Cramer on X. Have a question? Tweet Cramer #madmentions. Send Jim an email to
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Has the stock of CVS Health finally run out of gas? After a phenomenal run from late 2024 through July of this year, the stock has now pulled back almost 22% from its highs. So, we have to ask ourselves, is this a viable pullback or has CVS's turnaround been derailed? First, let me give you some quick history. From early 2022 to the end of 2024, CVS was lost in the wilderness. A lot of that was from Aetna, their health insurance business.
Many people put off medical care during the pandemic, so they had to pay for a ton of procedures once COVID was in the rearview mirror. At the same time, Aetna had been underpricing its Medicare Advantage plans like pretty much everyone else in the industry. Frankly, CVS also made some really large acquisitions. Wall Street didn't like them. The numbers kept deteriorating. So, ultimately, the old CEO got the boot and the board brought in David Joyner to run the business.
By the spring of 2025, I started recommending the stock. It was in the 60s, in part because CVS seemed to be turning itself around, but mainly because it had achieved sole survivor status with Rite Aid long gone and Walgreens going private and closing many of its stores. CVS had become the last man standing in many cities in the drugstore space. In the end, these guys fixed their Medicare Advantage problem long before the rest of the industry.
The business starts improving. CVS raises its earnings forecast repeatedly over the course of 2025. Everything seemed back on track. In fact, when CVS reported in May, they delivered a phenomenal beat-and-raise quarter that fueled the stock's run from $80 to a four-and-a-half-year high of $110 and change in July. And then it just rolled over.
In early August, the company reported another seemingly excellent beat-and-raise quarter. This was a huge upside surprise with a very strong forecast. But management also mentioned some complicated issues with their Caremark pharmacy benefits management business. Issues that spooked a lot of investors. Now, some of these problems have been bubbling up for a while. Basically, there's been a lot of noise related to the government's 340B drug pricing program, which requires drug makers that participate in Medicaid to sell certain outpatient drugs at discounted prices.
Basically, if you get a prescription from hospitals serving vulnerable communities, the drug makers need to give you a discount. And as a pharmacy benefits manager, or PBM, Caremark does a lot of business handling those transactions. But the drug companies have gotten more picky about when they'll offer these discounts, and a bunch of hospitals have sued CVS alleging that they siphoned off about $4 billion worth of 340B profits from 2020 through 2025.
Then in July, a couple more headwinds emerged. First, the Centers for Medicare and Medicaid Services announced a proposed rule change that would dramatically reduce Medicare payments for drugs acquired through this same 340B program. Currently, Medicare pays the drugs' average selling price plus 6%. But under the proposed rule change, Medicare would pay the average selling price minus 33.4%. Minus. That's a major difference.
Separately in July, CVS announced that Caremark had reached a settlement with the FTC resolving a dispute that dates back to the Biden administration. There was no monetary penalty. But basically, the Caremark business now needs to be more transparent about drug pricing. So, how much of a problem was this stuff? Well, when management talked about it on the latest conference call, it really freaked people out.
First, management said even in the second quarter, Caremark, quote, 'experienced some pressure in our 340B business as the environment for this program remains dynamic,' end quote. I always hate to hear the word dynamic. That means bad. But more importantly, CFO Brian Newman said, quote, 'We expect the previously discussed market dynamics in our 340B business to continue and result in a headwind in 2027,' end quote. 2027. So, the drug pricing rule changes will continue to weigh on their numbers.
Secondly, CVS said it now expects Caremark to see membership declines next year for two primary reasons. First, because of the FTC settlement, CVS is planning to have Caremark price its plans more conservatively, meaning these plans will be more expensive, possibly leading to a loss of market share. Second, many of the health insurance companies that Caremark partners with are changing their product lineups to adapt to the more complex environment. They're even exiting certain markets because it's not worth it to them anymore.
That's bad for Caremark's clients, but at least it's an industry-wide problem for these PBMs. Those negatives sent the stock down from 104 to 96 over the course of the next couple of sessions. But then it's just kept drifting lower ever since. But in a very big but, the actual quarter was great. Even if Caremark has some hair on it, Aetna is on fire and the drugstore business is strong. That's what just kind of shocked me. I mean, this is incredible.
All in this same piece of Caremark information. Sure, management had some caution in commentary about one part of the business, but they raised their full-year forecast substantially and also said some reassuring things about next year's earnings. They really stressed that despite whatever new issues Caremark is facing, the earnings growth story will remain on track. But none of that has been able to help the stock find its footing. So where do I come down?
Do not get me wrong, the Caremark business is worse than it was three months ago. According to Bank of America, this 340B issue could cause a 45-cent hit to earnings next year. Not insignificant for a company expected to earn $8.52 per share in 2027. But man, okay, the stock has plunged from 110 to 86. A possible 5% hit to next year's earnings should not send a stock down 22%, knocking nearly $30 billion off the company's market cap.
Especially not when CVS remains very strong aside from Caremark. I want you to look at it this way. The stock now sells for less than 11 times the midpoint of this year's earnings forecast and barely more than 10 times what CVS called the floor of next year's forecast. The number one drugstore in the country has now become insanely cheap.
Now, I don't blame anyone for getting spooked near the highs because this story got a lot more complicated. Most investors don't want to deal with anything complicated. But down here at $86 and change, I think CVS Health has finally become too cheap to ignore. The overall earnings growth story remains on track. In the end, management wanted to be transparent, so they went into depth on the looming PBM issues and really worried people.
But remember, we're talking about a proposed change to the 340B Medicaid reimbursement rules. Not the change, a proposed change. We won't know if it'll become a real rule change until next month. And even if it does, President Trump already tried something similar in 2018, and the Supreme Court unanimously struck it down, although it took a few years. All right, this story is not a simple one, which is scaring off a lot of people, and the possibility of disappointment from Caremark's division, I'm saying it's real, but that's why the stock's at 86 and not 96 or 106 or 116.
The bottom line, I do not think Caremark's problems, even as they could be difficult, should be enough to turn you off to CVS at 11 times earnings. While it could get cheaper, it's already too cheap to ignore. It's too late to sell, considering that anything draconian with Caremark is likely at this point already priced into the stock of CVS. Mad Money is back after the break.
Coming up, Cramer is seeing an opportunity for investors to make a move into onsemi. He's breaking down why next.
This has been a great year for the semiconductor space, but some chip stocks are doing a lot better than others. Today I want to talk to you about one of the laggards, onsemi, which makes power management and sensing chips for a host of industries, especially the autos and industrials, but increasingly, yes, the data centers. For most of the time that I've followed onsemi, it's been viewed as an automobile play. Even as recently as last year, the auto end market made up 51% of their sales. Autos regarded as one of the worst markets because they are so rate sensitive, and rates, as we know, have been trending higher. Industrial is 28%, and everything else, including the data centers.
service just around 21%. Their chips are used in advanced driver assistance systems as well as infotainment platforms that have become ubiquitous in new cars. These guys made out like bandits during the electric vehicle boom because EVs needed a lot more content, and then the stock spent years drifting lower after interest in electric vehicles faded. Onsemi peaked at $111 in the summer of 2023, then sank to the 30s before stabilizing a year and a half ago. At that point it started rebounding, but without that much momentum. Onsemi stock didn't really come back to life until the spring, when it more than doubled from late March through early June. The darn thing shot from $55 to $135. Now, some of that's because the company reported a solid quarter in early May, very strong guidance. Mainly, though, see, I think Wall Street finally recognized that Onsemi started gaining traction in the AI data center space.
Their chips have long been focused on regulating electricity use and distributing power efficiently, which is exactly what you need if you run a warehouse full of red-hot servers. When Onsemi reported in May, for example, management said that their AI data center business had accelerated the quarter, more than doubling year-over-year, growing 30% just from the previous quarter. In early August, they said they expected AI-related revenue to double this year. So the stock caught fire because Wall Street loves a semiconductor company with an AI kicker, even if the main business is chips for cars and trucks.
That's how Onsemi got its groove back earlier this year, but it lost that groove a few weeks later. Near the end of June, this company announced a deal to acquire a company called Synaptics for $7 billion in stock, and the market hated it. Synaptics makes chips and software for human-machine interfaces. Think touchscreens, fingerprint sensors, high-quality displays, voice recognition, noise cancellation. They also made some inroads in AI with a platform that runs real-time machine intelligence on local devices rather than relying on the cloud. That makes it faster. They're not in the data center itself, though. They help power AI within the Internet of Things, which is why Synaptics seems like a winner once we start seeing robots, which we know will be one of the biggest markets in the sector.
Onsemi had a pretty compelling argument for the merger. They argued that combining with Synaptics would make the company a much stronger player in the AI infrastructure ecosystem, especially once we get to physical AI. Think autonomous vehicles, the aforementioned robots, or augmented reality systems. They also projected they could rack up $200 million in cost savings. There was just one problem with the deal. It was the price. Onsemi was willing to pay $7 billion in stock for Synaptics, even though the business was valued at just $2.5 billion as recently as March. Wall Street saw this as the mother of all overpays. In response, Onsemi saw its stock plunge from $119 to $90 in a single session, nearly a 24% decline.
For the next few months, both stocks drifted lower. Some of that was industry-wide weakness in July. But then Onsemi reported an unremarkable quarter in August, and nothing seemed to turn the thing around. By mid-September, it was trading at $65, down more than 50% from the June highs. What a roller coaster. And because this was an all-stock transaction, every decline in Onsemi led to a decline in Synaptics. But in the past few weeks, the whole situation's changed. It changed for the better. And the stock is back to $86. You know what? I think it's not done going higher.
First, three weeks ago Onsemi held an investor day meeting where they made a bunch of big announcements, including an embedded power platform for the data center. Basically, a way to more efficiently get electricity into the high-end chips. There were new customer announcements like a strategic technology engagement with Subaru, and there were also some financial targets thrown around. They're talking about having a $213 billion addressable market by the end of this decade. Initially, Wall Street was not impressed. Onsemi stock fell 9% on the day of the event. Some analysts called the targets underwhelming, but in retrospect that was the turning point because the stock then rallied in 12 of the 14 sessions after the investor day, climbing 30%.
Best of all, last Thursday night we learned that Onsemi and Synaptics had renegotiated the terms of their deal. Rather than $7 billion in stock, they're now paying $5.7 billion in cash. Everybody wins. Onsemi gets a much more reasonable price, Synaptics gets a fixed price for their shares rather than taking payment in Onsemi's wobbly stock. Both names roared on Friday in response. As I see it, this is terrific news. The Onsemi-Synaptics merger made a ton of sense, just they were paying too much. Now they're getting the same assets at a much more reasonable price.
Onsemi shares are back at $86 at this point, up nicely from the mid-September lows, but still down meaningfully from those June highs. I think that means you're still getting an attractive entry point. The company's high exposure to the auto market presents a risk here because autos, as I mentioned, don't thrive in a high-interest-rate environment. But with the stock down nearly 50 points from its highs and all the other semis kind of right near their highs, I can't bring myself to be all that worried.
Here's the bottom line. After getting obliterated when Wall Street rejected the expensive Synaptics stock acquisition, Onsemi has finally started rebounding, aided by the fact that they just renegotiated a much lower price for the deal. While this is mostly an auto and industrial-focused chipmaker, that hasn't changed. They do have a rapidly growing AI infrastructure business that I think the market will keep paying up for now that the Synaptics deal is no longer a problem. I like the story. And if you want to buy a laggard semi that can play catch-up, you could do a lot worse than buying some Onsemi.
Let's take calls. Let's go to Riley in South Carolina. Riley.
Hey, Mr. Cramer. Hope you're doing all right.
