Jim Cramer, the host of Mad Money, discussed how “froth” is currently affecting the market, explaining that trend-driven stocks need to experience a decline before more stable stocks can begin to recover.
“The fad stocks, they need to go down before non-fad stocks can triumph. That’s what’s happening. It’s just a fact of life in this business.”
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After a rough week marked by a significant downturn in trendy stocks, Cramer pointed out that it is a rare positive sign in an otherwise negative environment that the trend seems to be running its course. Cramer reflected on the market’s performance, mentioning that the Dow managed to inch up by 33 points, while the S&P 500 fell by 0.5%. However, the Nasdaq dropped by 1.21%, turning negative for the year.
He also stressed that the decline primarily occurred toward the end of the trading day, which he found unusual and concerning, though he was not sure about the specific cause of the abrupt drop. “It was pronounced, it was nasty,” Cramer remarked, highlighting the sharpness of the downturn.
“Now, nobody wants anybody to lose money, including me, but there’s a thing called froth, and we gotta talk about it as froth is the enemy of prudence. Smart investing requires a degree of prudence, something that’s highly incompatible with froth.”
He explained that smart investment strategies require a certain degree of caution, which frothy market conditions cannot support. He pointed out that for a period, the market had been filled with froth but lacked prudence, especially evident during the turbulent trading seen late last week. However, Cramer noted that as the froth subsides, investors are turning to assets with more durability and longevity. He specifically mentioned that drug stocks have been performing well recently.
“So here’s the bottom line: Once these frothy momentum stocks come in enough, then we will finally be in a much more straightforward world, a world where what tends to rally is not the sizzle, but the steak.”
Our Methodology
For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episode of Mad Money aired on February 24. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the fourth quarter of 2024, which was taken from Insider Monkey’s database of over 1,000 hedge funds.
Why are we interested in 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Jim Cramer Thoughts on 8 Stocks As He Discussed Market Froth
8. D-Wave Quantum Inc. (NYSE:QBTS)
Number of Hedge Fund Holders: 15
D-Wave Quantum Inc. (NYSE:QBTS) was commented on during the episode and here’s what Mad Money’s host had to say about the company:
“Now I know there are real people who work at Rigetti or D-Wave…. They, they, they probably, they go to work, they, they talk with, about qubits and developing quantum materials that have never been ever seen before… Very compelling stuff but it doesn’t tell you much about the earnings power, which is what I care about.”
D-Wave Quantum (NYSE:QBTS) provides quantum computing systems, software, and services, such as the Advantage quantum computer and the Leap cloud platform. Additionally, the company offers D-Wave Launch, a service designed to help businesses integrate quantum solutions. The company stock gained more than 223% over the past year.
7. Rigetti Computing, Inc. (NASDAQ:RGTI)
Number of Hedge Fund Holders: 17
Talking about forth in the market, Cramer mentioned Rigetti Computing, Inc. (NASDAQ:RGTI) and said:
“Now I know there are real people who work at Rigetti or D-Wave…. They, they, they probably, they go to work, they, they talk with, about qubits and developing quantum materials that have never been ever seen before… Very compelling stuff but it doesn’t tell you much about the earnings power, which is what I care about.”
Rigetti (NASDAQ:RGTI) specializes in the development and creation of quantum computers and superconducting quantum processors. Expressing skepticism about the company in January, Cramer stated:
“But then for example, when I look at Rigetti Computing, it’s a $5.6 billion company, professes to be a leader in quantum computers and superconducting equipment, I grow concerned. Rigetti is a multiple-year money loser with just $11.9 million in revenues in the last 12 months.
This stock was at 66 cents four months ago. Now it’s at 20 bucks, up over 30% just today. Its big break occurred at the end of November when it sold 50 million shares at two bucks. The stock was off the races ever since then. Hey, it’s a quantum GameStop, okay?”
6. Palantir Technologies Inc. (NYSE:PLTR)
Number of Hedge Fund Holders: 64
Cramer noted that Palantir Technologies Inc.’s (NYSE:PLTR) CEO, Alex Karp, is skilled at creating excitement around the company with his media presence. Cramer highlighted Karp’s tendency to downplay issues, like the slowdown in Europe, by blaming it on external factors.
He also mentioned Karp’s high-profile book tour, joking that he hopes Karp, like Elon Musk, can balance business with his promotional activities. He then added:
“But Palantir’s stock is getting clobbered because it just had a parabolic move and right now this data analytics company needs a huge noisy client win. Karp needs fellow promoter, Elon Musk to hire Palantir to reform the Pentagon. This stock rallied to $125 at its highest last week. It’s now at $90 and change. Is this an all the king’s horses stock? No, not at all. It’s just that something needs to happen good at Palantir, some big contracts, some big win, not just a book tour. Anything that can reset the narrative because the potty mouth, CEO is saying that, that he’s all about lethality and ontology… I’m sure that if you hire Palantir, it’s like hiring the Spartans and your company’s opponents are gonna dine in hell. Very compelling stuff but it doesn’t tell you much about the earnings power, which is what I care about.”
Palantir (NYSE:PLTR) creates software platforms specializing in complex data integration and decision-making, catering to both government and intelligence sectors as well as commercial clients. The company offers a range of products, including Gotham, Foundry, Apollo, and its advanced Artificial Intelligence Platform (AIP), all aimed at assisting organizations in managing and interpreting large volumes of data.
5. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 223
NVIDIA Corporation (NASDAQ:NVDA) was mentioned during the episode and here’s what Cramer had to say:
“It’s terrifying when you own a nuclear power derivative and a big nuclear believer says it might not need that much, that much energy. Either that or it isn’t going to order a lot of chips from NVIDIA, which reports Wednesday. I’m trying to prep you. Of course, this whole alleged slowdown in the data center occurs right in front of NVIDIA’s earnings. Here’s a terrific company with a stock that’s just absolutely wilted. I mean unbelievable.
Now it, it, has Nvidia been a part of the froth? Let’s just say that it won’t be if it keeps delivering the way it used to, but it will be if it gives up the ghost… Less frothy than usual, but still frothy. Nonetheless, that’s how NVIDIA feels to me… I still say own it, don’t trade it, but don’t have any expectations of this particular quarter.”
NVIDIA (NASDAQ:NVDA), recognized for its innovations in graphics, computing, and networking technologies, is experiencing substantial growth driven by its GPUs and the CUDA software platform, both of which play an important role in AI infrastructure. The company delivered another beat and raise quarter on Wednesday when it reported results for the fiscal fourth quarter of 2025, posting an EPS of $0.89 on revenue of $39.33 billion. The Street was looking for $0.85 in per share earnings on sales of $38.14 billion. Here’s what Cramer said after the company’s latest earnings beat on February 26:
“Now, I don’t wanna obscure the company where the stock… that I always say own, don’t trade Nvidia. After the close, it was a very good quarter. Everyone thought this would be the most eventful quarter of earnings season, but it was a non-event. Why? Because it was terrific and Jensen Huang gives us terrific numbers.
He’s about as steady as the president is mercurial. The company put up solidly better-than-expected sales and earnings with strong guidance for the quarter, driven by the strength of their new high-end chips, Blackwell chips. Fantastic. Bravo. While we still have to worry about tariffs and export restrictions, I have to tell you, the numbers were excellent.”
4. Oklo Inc. (NYSE:OKLO)
Number of Hedge Fund Holders: 27
Cramer called Oklo Inc. (NYSE:OKLO) a speculative stock even though he acknowledged that the stock is a “fan favorite”.
“We really don’t need the, if we don’t want them, you know, I’ll tell you what we really don’t need, we don’t need the nuclear fission through Oklo. A total fan favorite. That’s one of the most speculative stocks out there… It’s frightening when you own a stock because of quantum computing prospects and then those hopes are dashed by an authoritative expert.”
Oklo (NYSE:OKLO) specializes in the design and development of fission power plants aimed at providing reliable, commercial-scale energy. Alongside power generation, the company also offers services for recycling used nuclear fuel. Cramer has been wary of quantum computing and nuclear power for a while now and in January, he stated:
“When it comes to nuclear power over-enthusiasm, we’ve seen some of these smaller companies that offer alternatives to the current plants, they worry me. Companies like Oklo with nuclear fission capabilities, NuScale Power with small form factor technology, they’re exciting, but they’re also years from developing anything meaningful. Or as my friend Michael Cembalest. chair of the Market and Investment Strategy group at J.P. Morgan wrote in his… 2025 outlook, ‘What nuclear renaissance? Wake me when we get there.”
3. Vistra Corp. (NYSE:VST)
Number of Hedge Fund Holders: 120
Mentioning Vistra Corp. (NYSE:VST) during the episode, Cramer commented:
“How about the walloping in the nuclear power utilities like Vistra and Constellation Energy? These stocks are on a rollercoaster and right now they’re on the downside. They, they trade like they weren’t even wearing their seat belts. When you’re going down, which is what you know what happens, you fly up and then you land on your head. Microsoft had a hand in the froth here too, except this time at least it was negative. See these momentum utility stocks, all data center plays won’t be as important if Microsoft’s actually cutting capital expenditures for data centers, which is also what we heard on Friday. Why the heck do we need to bid up the stocks of tangential utilities when maybe we don’t even need to worry about the regular utilities? Maybe they got enough power, of, of course, we don’t need Constellation or Vistra.”
Vistra (NYSE:VST) is a company focused on power generation and electricity supply, serving a wide range of customers across residential, commercial, and industrial sectors. Meridian Hedged Equity Fund stated the following regarding the company in its Q3 2024 investor letter:
“Vistra Corp. (NYSE:VST) is an integrated retail electricity and power generation company, primarily serving Texas and the Midwest. We own Vistra because we expect power markets to continue tightening as baseload supply declines, coupled with rising demand from data centers, electric vehicles, and manufacturing reshoring. These factors create a favorable pricing environment for Vistra’s generation fleet, especially its nuclear and gas assets. The stock performed well during the period for three key reasons: tightening energy markets and strengthened pricing in forward-year energy contracts, the continuation of Vistra’s aggressive share repurchase program, and the company’s announced plan to acquire the remaining interest in Vistra Vision at an attractive valuation. Additionally, the company reaffirmed its 2024 guidance, indicating that results are trending toward the upper end of the previously projected range. We took advantage of the stock’s strength this quarter to trim our position.”
2. Constellation Energy Corporation (NASDAQ:CEG)
Number of Hedge Fund Holders: 85
Discussing the impact of Microsoft’s decision to cut its capital expenditures for data centers on companies like Constellation Energy Corporation (NASDAQ:CEG), Cramer said:
“How about the walloping in the nuclear power utilities like Vistra and Constellation Energy? These stocks are on a rollercoaster and right now they’re on the downside. They, they trade like they weren’t even wearing their seat belts when you’re going down, which is what you know what happens. You fly up and then you land on your head. Microsoft had a hand in the froth here too, except this time at least it was negative. See these momentum utility stocks, all data center plays won’t be as important if Microsoft’s actually cutting capital expenditures for data centers, which is also what we heard on Friday. Why the heck do we need to bid up the stocks of tangential utilities when maybe we don’t even need to worry about the regular utilities? Maybe they got enough power, of, of course, we don’t need Constellation or Vistra.”
Constellation Energy (NASDAQ:CEG) is an energy provider engaged in generating and distributing electricity from diverse sources, including nuclear, wind, solar, natural gas, and hydroelectric power.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 317
Cramer, noting that Microsoft Corporation (NASDAQ:MSFT) contributed to the froth recently, said:
“Let’s speak to the frothiest of froth, quantum computing. Yeah, it is pretty funny when you think about it. We know that before Microsoft started talking about quantum computing and being all jazzed and bulled up about it, there was this fringe quality to the entire theme. Then Microsoft went all in about quantum computing based on all new source of matter, made it sound like quantum’s around the corner.”
Cramer pointed out that nothing seemed more credible than Microsoft (NASDAQ:MSFT) promoting a compelling narrative around quantum computing, until Friday evening when a Wall Street Journal article titled “Physicists Question Microsoft’s Quantum Claim” came out. Cramer reacted strongly to the piece, describing it as a “total takedown” of the company’s quantum computing claims. He emphasized that the article was a harsh and thorough criticism, noting that it was a “vicious beating” for Microsoft’s pitch in the quantum computing space. He added:
“Here’s the snippet, ‘This is where you cross over from the realm of science to advertising,’ said Jay Sau, a theoretical condensed matter physicist at the University of Maryland… Talked about a guy who knows the stuff. He even worked for Microsoft on some odd jobs. Maybe got to like an expert who’s willing to cross a pretty darn big employer with some truth that sent down all the quantum computing stocks. Rigor one, froth nothing. Can we please stick a knife in quantum already?”
Microsoft (NASDAQ:MSFT) creates a wide range of software, services, devices, and solutions, including productivity tools, cloud computing services, enterprise applications, gaming products, and offerings for both consumers and businesses.
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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