Semiconductor stocks have been getting crushed in recent days, but CNBC’s Jim Cramer said Tuesday there’s a compelling reason not to give up on the group.
The VanEck Semiconductor ETF has fallen 7.2% over six consecutive sessions, and Cramer warned that rising oil prices and interest rates could prolong the sell off. However, he argued chip stocks are increasingly trading together regardless of their individual fundamentals, obscuring the strong demand that fueled the sector’s remarkable rally earlier this year.
To illustrate his point, Cramer described a recent visit to an Apple showroom, where he saw devices featuring a more personalized Siri and advanced smart home technology. The experience highlighted how increasingly sophisticated consumer products require more computing power and memory, creating additional opportunities for chipmakers.
“Before you decide to bail from the semis because you can’t take the pain, go to the showroom,” the “Mad Money” host said. “Go see where these chips are used. They appear in places that you’d least expect them. Don’t watch the semiconductor index, watch the devices.”
Cramer pointed to memory chip maker Micron as an example of a company whose fundamentals are being overshadowed by the broader sell off. The company has become one of the biggest winners of the artificial intelligence build-out, with demand for memory chips far outstripping supply. Cramer highlighted its 26 long-term customer agreements, which currently cover about 35% of revenue through 2030, with negotiations already underway for 2031. Those take-or-pay contracts require customers to honor their financial commitments, he said, giving Micron greater visibility into future revenue. “If Micron had no agreements I would be worried,” Cramer said.
And the demand story isn’t limited to memory chips. Cramer also highlighted Intel and AMD, which “make the CPUs that are basic building blocks for practically every machine under the sun.”
Cramer acknowledged that the group could face further losses after its enormous run, but said investors shouldn’t dismiss the fundamental demand behind those gains. “It’s reasonable to expect a sharp pullback after how far these stocks traveled,” he said. “I just think that when you see the devices, when you know the exploding use cases, you can understand why Micron or Intel or AMD have been moving up.”
“It wasn’t all Situational Awareness, the wayward hedge fund that took so many semis up to unsustainable levels with borrowed money,” Cramer said. “A lot of this is just raw demand.”
Cramer’s Charitable Trust, the portfolio run by CNBC’s Investing Club, owns shares of AAPL, INTC, MU.
