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Jim Cramer (1:38)
Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. Other people want to make money. I'm just trying to save you a little. My job is not just entertain, it's to teach you to deal with days like today. So call me at 1-800-743- CNBC. You can tweet me at Jim Cramer. Somebody has to pay the bad guy might as well be me. In the last two months, regular viewers of this show know I've gotten cautious on the more speculative stocks and connected to the data center. And I I've said repeatedly that when I say insider selling and secondary offerings, borrowings and operations with no revenue, I'd have to take a step back. I had proclaimed 2025 is the year of magical investing, where if you bought anything, anything at all that's involved in the data center. You made money earlier this week though, and what I admit is a very big change for me. I pulled the plug on the year of magical investing. I pronounced it over dead. Well, you know, that's a good call. Dow tumbling 798 points. S&P plunging 1.66%. Nasdaq plummeting 2.29%. Nothing magical about those figures. Today was a hideous day, but certainly for tech, most especially the data center and AI stocks. See, the money's headed to the sidelines are headed to high growth, away from tech. I don't want to abandon the truly profitable companies involved in AI and my trust hasn't. But I know a mania when I see one, and this one feels like it's starting to unwind. What am I scared of? Simple. A year I lived through the year 2000. Back in 1999, I bought a company public that was losing tens of millions of dollars. It opened at $63, it went to $61 and went to $63 same day. But before long it had fallen to 2 bucks. I was still at my hedge fund back then, so I liquidated. Almost my entire portfolio went short because of what I saw from others. Hundreds of dot coms were coming public and they were all trying to raise more money while the insiders were selling their own stock. It was also obvious. I swear if I ever saw it happen again, I'd flag it to you. So I'm flying with you. Back in April 2000 became clear that the rug had been pulled from underneath the owners of these.com stocks. So the institutional money fled into food and drug names. Does that sound familiar? Health care stocks have now been up for nine straight days. Now, the comparisons are by no means perfect. Last night, Cisco, the networking company, reported a terrific quarter. There was some great irony here. Cisco was the largest company in the market at the top of 2000. On last night's conference call, CEO Chuck Robbins was asked directly whether this period could be considered similar to the 90s. Here's what he said. Quote, this is a common question that we get, particularly since we live through it. I think there are a few differences. I think that the speed at which this transition is moving is even faster than it was, end quote. On the other hand, Chuck also pointed out the, quote, companies that are investing in this are massive, strong balance sheets, strong cash flow, profitable companies, end quote. And that a lot of the spend is coming from companies that are, quote, incredibly strong, who view this as existential, end quote. He said that unlike the dot com era, there aren't as many companies that are making bets that don't have business models even as there will certainly be both winners and losers. I think that's almost all true. And I just kind of now I put a question, Chuck. I said maybe things aren't exactly perfect because, well, let me give you the two cases that I'm worried about now. Some of the peripheral companies, particularly in quantum computing and alternative power, which have a long history of losing money, they are losing money. And there's one Huge company with what looks like a terrible balance sheet that's losing fortunes even as it spends like crazy. And here I'm talking about OpenAI, the creator of Chat now, this company spending so much money and making so many promises that even though it's growing incredibly fast, no doubt about it, 800 million users, $20 billion exit run rate, it's still nowhere near what they need. Now, I don't know a soulless business who thinks that Open Air is a clown show. I mean, pretty much everyone agrees it's the best of the bunch, but because it's the best, OpenAI has been able to make hundreds of billions of dollars in promises to the point where its CFO mentioned the other day that it might need to be backstopped by the federal government. Actually said it twice now. She really walked it back and she probably really regrets. I know, regress it. But. But you know what, here's what it did. It made you feel like anyone who's on the hook to Open AI might have a big problem down the road. Yes, Open Air has indeed I think, become too big to fail. It's just that nobody's willing to say it and it seems like everyone in the business is looking for an Open Air handout too. I regard that as worrisome. The second and more insidious level of behavior has to do with insider selling, which I'm seeing all over the place, and secondary offerings in the alternative power companies, Quantum Computing Place, and perhaps the worst AI related crypto companies. It's very reminiscent of the dot com era, very sobering. Let me give you a story that's right out of the year 2000. This company called Bit Deer Technologies Group, which calls itself, unquote a world leading technology company for Bitcoin Mining and AI Cloud, end quote. It just priced $4 million of a 4% convertible senior note. It also priced more than 10.6 million Class A ordinary shares for certain holders of its 5.25% convertible senior notes. Bit Deer intends to use a big chunk of the proceeds to pay down about 33 million in convertible debt from a previous transaction. Though the actual proceeds really weren't that clear. Whatever's left, they plan to spend on, yes, datacenter expansion. Now look, I don't mean to pick on Bit Deer. It's probably fine company. It's lost a lot ton of money though. I mean financing knocked the stock down 20%. That's like 2000. It was at 2780 on October 15th. It's now at 11 again like 2000 what happened with this bit tier financing is exactly what kept happening in 2000. Companies that were big money losers kept selling stock or bonds, convertible bonds, to raise money at any price they could get. Maybe this is the kind of offering that works out. Maybe bitter turns out to be the next core scientific or maybe the next core wave, which did do well off that ipo, but I doubt it will ever be the next Cisco Put it all together. I think it's obvious we're now in shakeout mode. Because if days like today investors will grow skittish about funding money losers, many of the money losers will then have problems paying their bills. In 2000, these kinds of companies ended up bringing down the whole darn edifice. Now, I don't think that's going to repeat like that. Why? Because the big hyperscalers that we talk about all have more money than they know what to do with unless they continue to spend like crazy and then who knows. But until OpenAI comes public and raises tens of billions of dollars, until we start seeing some real results from the quantum and nuclear and bitcoin related companies, I have to say that the year of Magical Investing isn't going to restart anytime soon. It's over. Days like today remind me so much of the spring of the turn of the century where the money flew out of everything tech and then it piled into Merck and Bristol Myers just like we saw today. As I said at our noon CNBC Investing Club meeting, which you might want to just subscribe just to hear the darn talk that Jeff Marks and I gave, we run a diversified portfolio of stocks to avoid having all our eggs in one bit deer like basket. It hurts less. We won't make as much money if those stocks keep going up, but we'll bounce back a lot faster. Now the data center stocks we own for the Travel Trust are incredibly well capitalized. The Magnificent Seven had the wherewithal to keep spending, but OpenAI, at least on paper, simply doesn't have that kind of cash. So it would behoove them to get it. Especially now that everyone's worried about the need for a possible government backstop courtesy of those excessively honest comments or ill fated comments or inappropriate comments by the cfo. If they get it, these you know what will happen. The stocks will get a huge second win. If they don't, the year 2000 comparisons will continue to be made on Mad Money. The bottom line at this point, there's more than one nail in the coffin of the Year of Magical Investing. A few more of these and you know what? It's going to be like that Stephen King book, which I absolutely love. You can do a sequel to a pet cemetery and you can fill it, but this time with bit deers and all sorts of other crypto or AI animals. I definitely would read it, but please don't ask me to live through it again. John in Connecticut. John, hello Jim.