We recently compiled a list of the Jim Cramer’s 10 Stock Picks You Need to Know. In this article, we are going to take a look at where Sphere Entertainment Co. (NYSE:SPHR) stands against Jim Cramer’s other stock picks.
In a recent episode of Mad Money, Jim Cramer views the current market as highly unpredictable and easily swayed by even the slightest news. He acknowledges that while some sectors are thriving, others are struggling, making it a mix of the best and worst of times depending on the industry.
“Look, this market is so ridiculous that you could knock it over with a feather or take it up with a breeze. I wanted to borrow from Charles Dickens: “It was the best of times, it was the worst of times.” But the simple fact is that this isn’t the worst of times—just the worst of times for stocks in certain industries, and the best of times for others. Or within the confines of some hideous action for the average, with the Dow sinking 626 points, the S&P plunging 2.12%, and the Nasdaq plummeting 3.26%. It was a nasty day, right into the close.”
Cramer explains that a seemingly minor purchasing management report caused a widespread sell-off, particularly hitting cyclical stocks, homebuilders, and tech companies connected to AI. Despite the panic, Cramer emphasizes that these sectors, especially semiconductors, oil, and housing, are actually performing well. The sell-off, in his view, was driven by irrational fears that these strong performances won’t last.
“Now, what makes this market so ridiculous in my eyes? We had some obscure purchasing management report that threw everything off this morning, causing a wholesale collapse of the cyclicals, along with the homebuilders and anything connected to technology, particularly the once-beloved data center plays with big AI exposure. Given the chaos after that manufacturing PMI number, you’d think the semiconductor, oil, and housing worlds were in free fall. But in reality, these companies are doing incredibly well. The sellers are just worried they won’t stay good for long.”
Pure Stupidity
He attributes the market’s reaction to what he calls “pure stupidity,” combined with the typical challenges the market faces in September. This seasonal weakness can become a self-fulfilling prophecy, leading to exaggerated reactions. Cramer believes that while the economy is slowing, the Federal Reserve is likely to cut interest rates in the coming weeks, which could benefit sectors like homebuilding.
“Frankly, I think this action represents pure stupidity, combined with the fact that the market is typically challenged in September. That’s what’s going on here, something that’s true empirically—to the point where it can become self-fulfilling. That’s how it felt today. Sure, the economy is slowing, but in a few weeks, the Fed’s going to cut interest rates, and you’ll wish you’d stuck with a lot of what was on sale today, like the homebuilders. They are the real winners in any move that would take down mortgage rates, which is what would happen if the Fed cuts.”
A Repeat of the 1999 Dot-Com Bubble?
Jim Cramer acknowledges that if a scenario like 1999 were to repeat, it could be disastrous for chipmakers and the tech industry surrounding AI. He respects Cembalest as one of Wall Street’s top strategists but feels his comparison to the 1990s might be too harsh. Back then, many companies were spending recklessly, but today, the company and its clients are among the most financially stable companies in history. The company faces little real competition, with no other companies close to matching its capabilities.
“A repeat of 1999 would indeed be devastating for the company and all the tech that surrounds it. As much as I think Cembalest is the best pure strategist on Wall Street—the best I’ve found—I found this piece a little harsh because we had many fly-by-night outfits spending like drunken sailors back in the 1990s. Now, though, the firm and its clients are some of the most well-endowed companies ever. The company doesn’t have any real competition, and no one is near them by their own proclamations.”
Nvidia CEO Jensen Huang has repeatedly emphasized that if tech giants don’t invest now, they’ll miss out on future opportunities when they lack the necessary infrastructure. He’s proven that the company’s platform pays for itself quickly, which was not the case in 1999.
“As the company’s CEO Jensen Huang has pointed out many times, if the tech titans don’t spend, they’re out of luck when some great use cases come along, and they don’t have the infrastructure for it. Remember, Jensen has proved that the platform pays for itself very quickly. That sure wasn’t the case back in 1999, was it? Of course, the company’s stock has become a total pariah right now after this amazing quarter because the world suddenly seems convinced that AI spending will peak soon, at which point it’s all over but the shouting. “
Despite the firm’s impressive recent quarter, its stock has become unpopular, with many believing that AI spending will soon peak and that the stock’s rise was overblown. Investors seem eager to push the stock back to its early August lows, around $90 after the company only delivered a major upside surprise, not the massive one they had expected.
“Stocks are getting slammed because most investors think the company’s run-up was too extreme, given that the company only reported a major upside surprise—not the kind of insanely huge upside surprise they’d come to expect. The sellers are eager to take the company back to where it was trading during the last visit to the penalty box in the first week of August, with the stock ticking as low as $90 and change.”
Cramer anticipates that sellers will return in force following news that the Justice Department has subpoenaed the company in an antitrust probe. However, he downplays this development, noting that such subpoenas are standard practice, questioning why the Justice Department didn’t simply ask the company some questions instead.
“I’m sure the sellers will be right back tomorrow morning after we learned tonight that the Justice Department has hit the company with a subpoena over an antitrust probe. Now, who cares? That’s standard practice. It’s shot first, second, and third. Though with the company right now, no one’s thinking, “Well, wait a second, why didn’t the Justice Department just ask them some questions?”
Our Methodology
This article covers a recent episode of Jim Cramer’s Mad Money, where he reviewed several stocks. It highlights ten large-cap companies that he recommended and looks at how hedge funds view these stocks. The article also ranks these companies based on the level of hedge fund ownership, from the least owned to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Stagehands setting up the equipment for a live entertainment event.
Sphere Entertainment Co. (NYSE:SPHR)
Number of Hedge Fund Investors: N/A
Jim Cramer has expressed some skepticism about Sphere Entertainment Co. (NYSE:SPHR)’s potential for long-term growth, despite acknowledging its current success in Las Vegas. He recognizes that Sphere Entertainment Co. (NYSE:SPHR)’s flagship venue, the Sphere, has been impressive, but he is concerned about the company’s ability to expand into other cities. According to Cramer, the key issue is whether Sphere Entertainment Co. (NYSE:SPHR) can secure agreements for new locations.
“I never had much doubt about the strength of the Sphere in Las Vegas. What worried me was whether the company could expand to additional cities. That’s the fly in the ointment here. As of right now, there’s still no agreement for any new Sphere locations, despite the promise of updates coming soon from management on the last three conference calls. But that’s the whole ballgame here. Without new locations, they don’t really have a long-term growth story. The analysts are split on this issue.
Last month, JP Morgan upgraded Sphere, saying international expansion is “a matter of when, not if.” On the other hand, Benchmark downgraded the stock today because they’re feeling more dubious about the idea. Putting it all together, Sphere Entertainment has done an incredible job with what they’ve got, which is one insane venue in Las Vegas. The company has certainly done better than I expected, which is why the stock’s had such a big run.”
Sphere Entertainment Co. (NYSE:SPHR) is a promising investment due to its recent developments and financial progress. Sphere Entertainment Co. (NYSE:SPHR)’s standout asset, the Sphere in Las Vegas, which opened in September 2023, showcases state-of-the-art technology and immersive experiences. This new venue enhances Sphere Entertainment Co. (NYSE:SPHR)’s role as a leader in live entertainment, attracting considerable attention from investors.
Investor confidence in Sphere Entertainment Co. (NYSE:SPHR) is further boosted by billionaire Steve Cohen’s recent purchase of a 5.5% stake through his firm, Point72 Asset Management. Cohen’s $50 million investment underscores a strong belief in Sphere Entertainment Co. (NYSE:SPHR)’s future growth, which positively impacts the stock’s market sentiment and volatility, often signaling the potential for expansion. Moreover, Sphere Entertainment Co. (NYSE:SPHR) has shown strong financial performance, with a 33% increase in operating income for fiscal Q4 2024 compared to the previous year.
Sphere Entertainment Co. (NYSE:SPHR)’s strategic focus on reducing administrative expenses has improved its financial health. Together with its innovative entertainment offerings and significant institutional support, these factors make Sphere Entertainment Co. (NYSE:SPHR) a compelling investment with substantial growth prospects.
Ariel Fund stated the following regarding Sphere Entertainment Co. (NYSE:SPHR) in its Q2 2024 investor letter:
“By comparison, shares of live entertainment, media and technology company, Sphere Entertainment Co. (NYSE:SPHR) traded down on mixed earnings results, giving back some of its strong first quarter gains. Although residency demand is robust and the venues’ original content experience and Exosphere remain popular, some investors expect near-term utilization will slow due to Las Vegas seasonality.
Meanwhile, international expansion remains the company’s priority, with management suggesting a major announcement soon. Although we believe it will take time for Sphere to reach its full potential, the company is well on its way to having events 365 days a year. It is ramping up the scale of its concert residencies, securing marquee sporting and corporate events, and creating more original content for The Sphere Experience.
In our view, the new experiential immersive venue in Las Vegas and its potential franchise opportunities alongside the company’s two regional sports and entertainment networks present a long-term opportunity that remains meaningfully underappreciated at current trading levels.”
Overall SPHR ranks 10th on our list of Jim Cramer’s stock picks you need to know. While we acknowledge the potential of SPHR as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SPHR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.