Jim Cramer (24:06)
Extra shipping, billing, admin, payroll, marketing. You're managing all the things, so why waste time sending important documents the old fashioned way? Mail and ship when you want, how you want. With stamps.com print postage on demand 24. 7 and schedule pickups from your office or home. Save up to 90% with automated rate shopping. That's why over 1 million small businesses trust stamps.com go to stamps.com and use code podcast to try stamps.com risk free for 60 days. All this week, I'm on a mission. I want to focus on what could go wrong with this market. Not just because stocks sold off hard yesterday. We're bouncing back today once President Trump said he's formed the framework of a future deal for Greenland. I'm just trying to be disciplined. The averages have had a tremendous run for some time now. So you need to consider what might derail this bull market. Look, if the market was down these last few years, believe me, it wouldn't be like this. We do the inverse and explain what could go right. There's a lot to consider here. But right now, let's talk about the biggest chink in the armor of the massive. Incredibly important to the market. At least a data center build out. It is powering literally hundreds of stocks of all sorts of varieties. It can't go bad. And I'm talking about Open Air, the sprawling hyperscaler that invented chat, cbt. And it tends to dominate the artificial intelligence world. Now, last fall we started hearing about OpenAI placing hundreds of billions of dollars of orders with Oracle. That's to build out data centers. Nvidia, Core Weave, amd, Broadcom, Amazon Web Services. Some of these deals raised some eyebrows because companies would invest in OpenAI and then OpenAI would use that money to buy things from them. All right, it's called circular deals. Not my problem here. Initially, it sent the data center stocks into the stratosphere. But Wall street quickly started wondering how the heck OpenAI would be able to pay for all this stuff. Reasonable, reasonable concern, he added up. And CEO Sam Altman said they committed to $1.4 trillion in compute spending over the next eight years. That works out to $175 billion per year just on computing power. Wow. Remember OpenAI finished last year with a $20 billion annual revenue run rate. Okay. Amazing accomplishment given how quickly they got there, how young the company is, but is nowhere near enough to cover these bills. Sure. Management says they can generate hundreds of billions of dollars in annual revenue by 2030. But that's so far above the numbers that they're putting out now that it's hard to put much faith in that forecast. Although of course I want to believe. You know what, it didn't help that CFO Sarah Fryer threw around these comments at a Wall Street Journal conference about a possible government backstop last November if things got tight. The those comments crush the entire group again. Even though the company only walked back the comments. You never want to contemplate that a company you might invest in could need a government backed up. There's a reason that so many of the major data center stocks actually peaked in late October or early November. Open I have been the driving force by much of last year's AI rally and it become a question mark question mark of their own doing frankly. And that was the top of many of the arms dealers. Then in mid November, Alphabet released its latest AI model, Gemini 3, which quickly became regarded as the best in the business by a lot of us who just turned now I should let our views Reviews were positive. Alphabet had been counted out because doubters couldn't imagine how they could prevent Gemini from cannibalizing Google search. I was one of those doubters, but they just put the search results out on the same page. Problem solved. Gemini right next to it. You know, look, you just got to go see it. I promise you you might switch. A good chance you'll switch from chat CBT if you if you go to Gemin I have we have to ask if OpenAI's no longer got the best generative AI platform, can we really count on them to make enough money to cover their spending commitments? Logical question. The truth is these guys were always going to have to raise a lot of money to pay their bills. The only question is how richly their stock will be valued in December. Open I got a $20 billion plus cash infusion from SoftBank to complete a funding round from March of last year. Later that month we started hearing that the company was looking to raise $100 billion in another private funding round, perhaps at a valuation of more than 800 billion. There's also been chatter that they might be considering a very, very large ipo. But CFO Sarah Fire shot that idea down back in November. I doubt they'll do an IPO anytime soon, and if they did, I bet they would have to reveal a set of his financial results that would show significant losses, very negative cash flows. Frankly, I'm just not sure that the public investor really would support the deal right now, especially if they're trying to raise hundreds of billions of of dollars. Now with the new year, we've gotten some additional news on the opening situation. It's actually good. Not all of it though. Let's start with the positive. This past weekend Sarah Fryer, that's that CFO published an update about the business including some new financial details and there were some great numbers in here. Both weekly active users and daily active users continue to produce all time highs. While their compute spending has skyrocketed, their annual recurring revenue has grown at the same pace, which suggests they aren't wasting their money. This year, Fryer says their focus is on practical adoption, meaning finding ways for real world industries to harness their platform. That's encouraging. I thought the exposition frankly was brilliant like its author and it gave me conviction that OpenAI's thinking big and won't just be a business to consumer operation. As for the more negative news though, two things really stood out. First, we continue to see more and more interest in Claude Code, another rival. This one is a product from OpenAI's and Chief I'd say. Well let's say that they are. They're not. They go against each other pretty hard. How about that? I'm trying to think about it because I don't want to call it these guys are all kind of prickly. I don't know if you know that Anthropic is a very good business to business site. By the way, Claude Code is one of the reasons why most enterprise software companies have continued to get hammered in the New York because it is so good. I asked it a question. I literally wrote a program. I wrote a program. I couldn't believe it. I don't know how to write a product. I achieved me right Netflix program. In other words Anthropics Claude has emerged as one of the most favored AI platforms for the enterprise at the same time that Google's Gemini is increasingly seen as the best AI platform for the consumer. So where does that leave Open? I don't know. Although we know OpenAI has its eyes on the enterprise markets I mentioned. How about the second negative development issue? This one I really don't like. It's a long standing lawsuit from Elon Musk, who co founded OpenAI back in 2015 when it started as a nonprofit venture and it's starting to look like it could be a major problem for the company. Earlier this month a judge ruled that the case could proceed to a jury trial, which should start in late April. According to a court filing from last week, Musk is seeking up to $134 billion in damages from OpenAI and its partner Microsoft. I'm calling that negative. Thousands of pages of evidence from the case have been unsealed this month. Speaking of someone who went to law school, some of the details here look pretty suboptimal for Open Air. The company already sent letters to investors warning them to expect, quote, deliberately outlandish claims and quote from Musk. There's an old saying, don't get into a pissing contest with a skunk. And that's exactly what this lawsuit feels like to me. I usually don't use that saying, but I put it in. So as we begin 2026, here's what I'm thinking about OpenAI. First, I have a pretty simple question. Can this company complete the private fundraising round that was rumored in December? OpenAI wants $100 billion. The largest private funding round in history was when These guys raised 40 billion last year from SoftBank. The largest IPO in history is when Saudi Aramco, Saudi state oil company raised just under 30 billion in 2019. So it's not going to be easy for OpenAI to raise 100 billion no matter what. Then of course there's a question of whether or not they can get a valuation near what they've been what's been rumored, call it 800 billion or more. If OpenAI can truly raise 100 billion at an $800 billion valuation. You know what? I think the whole data center complex could really get going again after a three month pause. But what if investors insist on a lower valuation, say 500 billion which was the last valuation used October for secondary sale? No, confidence is part beyond fundraising. We need to see OpenAI make even more progress on the revenue growth front. Otherwise it's optimistic. Long term forecast just won't seem credible. And I say that fully knowing that OpenAI's revenue growth is is astounding. So here's the bottom line on what I think is probably the biggest issue for 2026. Open air has become the Achilles heel of the AI data center complex. If it can raise enough money that I'm betting the whole group can roar and the taunt of Achilles will disappear. But if Open I can't raise that money, if they keep losing money and they keep losing share to Gemini and Claude, or if they lose the lost to Elon Musk, well, that's real bad news for the many data center companies that are relying on Open Air for a big chunk of their orders. I think nothing is more important for the success of the complex and open AI. But there are enough question marks to make me more cautious than last year. And as I intend to say at tomorrow's investing club meeting, there are many other sectors that might be more attractive if this company lets us down. Let's go to Lanai in Florida. Lanai Booyaski, Daddy, second time caller, longtime listener, and I am glad you're calling to make me a better investor. Oh, thank you. That is the goal. It's a simple goal. I tell my daughter that yesterday I said, look, I want to make people better investors if they make money. Fantastic. Let's go to work. All right. My stock is Motorola Solutions Ticker msi. I've owned it for years and it's had a nice run, but it's backed off. What are your thoughts? I think Greg Brown is doing a terrific job. I like the company very much. I have to tell you, I thought they were going to give Axon a run for the money. I'm actually not giving up on that. I think it still happened. And thank you for the kind words. I'm really focused on this. In 2026, we are going to make you a better investor or else. All right. Open air is the Achilles heel, the data center complex. If something goes wrong for them this year, then the whole group is going to suffer and then maybe the whole market it will. Much more money ahead, including my continuing series on what, like we just heard, could go wrong. This time I'm going to focus on the potential introduction of new supply of stock, something I'd like to think I'm a bit of an expert on. I'll reveal what the risks are to your portfolio and I always say, discipline Trump's conviction. But for one area of the market, it's been, let's just say it didn't come out the way I like. I'm going to explain why an order calls rapid fire in tonight's edition of the Lighting Round. So stay with Kramer. Yesterday we got hammered, but today the market came roaring back after President Trump promised that he wouldn't try to take Greenland by force, although he still wants it and may have a treaty in hand without new tariffs, which apparently all we need to do to get a rally going. Still, I think it's worth considering what be could go wrong for a market when we're still not too far from the highs. That's why I've been highlighting potential issues all week. Now I want to focus on something that's historically been just lethal to market throughout history. I'm talking about a supply shock from A wave of stock offerings. Remember, at the end of the day, the stock market is above all market and markets are controlled by supply and demand. If you remove supply through mergers and buybacks, it helps the averages levitate. But if you flood the market with new supply from stock offerings, sell, sell, sell, sell, sell. Eventually there's not enough money to sop up the supply and we go lower. After the big run that we've had for the past three years, including extremely frothy action we've seen in the past few weeks, my biggest worry about new stocks by comes from existing companies. We've seen huge runs in speculative stocks that make little or no money. Those companies will all need to raise capital eventually, probably through secondary offerings. And the best time to do that is when your stock is up flying. For example, let's do this. Check out Resolve AI. It's a British company that says it's developing AI software for E commerce, but one that's still a long way from profitability. Like I mentioned last night, Resolve preannounced some solid revenue numbers last week and the stock caught fire. Coming into this past weekend, it was up nearly 80%. Year to date. Year to date. But that's no longer the case because yesterday morning Resolve announced the selling 62 0.5 million shares at $4 each, raising $250 million in gross proceeds. That $4 price was a 13% discount from Friday's close and the stock ultimately plunged 23% yesterday for losing another 1.4% today. The big gains of the past week. Okay, they've completely disappeared. Of course, sometimes companies are more subtle with their fundraising. Instead of selling stock, they'll sell convertible bonds at be transformed into equity at the owner's discretion. Just look at strategy. That's the old microstrategy, which has borrowed a lot of money to turn itself into a leverage bitcoin play. Strategy has done that through convertible bonds they offer. They often issue zero convert bonds, meaning they don't even have to pay interest on them and with conversion prices that are well above the spot level of their shares. Strategy. Share prices come down a lot over the past several months at$164. Today it's down 64.4% from its 52 week high last July. The main reason is that Bitcoin's come down. But it doesn't help that there are all these convertible bonds floating around that could turn into stock. Maybe sooner than you think. The next source of the new supply comes from insider sales, meaning when top executives, board members or large shareholders sell stock in their company. These insider sales have to be disclosed via the SEC filing so you can monitor them. And when you see it, powerful warning sign. These are the things I worry about. Of course, we haven't seen a ton of secondary offerings or selling in the past three weeks. Still, I'm watching it. Finally, let's address the big source of news of stock supply that I'm most concerned about that could be coming later this year. The IPO market. Do you know that the IPO market is maybe my number one worry for 2026? Because it's going to be so big, I expect the IPO market to keep recovering in 2026. Last year we had just over 200 deals collectively raised 44 billion billion, according to Renaissance Capital, the IPO research firm. This year, the same firm expects 200, 230 deals raising 40 to 60 billion dollars. If Renaissance is right, then the market will be fine. You know why? Because 60 billion is actually not enough to overwhelm us with supply. I like that. My concern is that we could have a wave of colossal deals later this year. Companies like databricks. They've been on our show. The data storage and analytics company, or elon Musk, the SpaceX, or this anthropic, the parent of Claude, or even Open AI, although I think the latter is unlikely. Still, those are four of the largest privately held companies in the world. So if any of them comes public, we're talking about some of the biggest IPOs of all time. A deluge of stock databricks was valued at 134 billion in a private fundraising round just last month. Space X was valued at 800 billion. A secondary sale last month. Anthropics are poorly working to raise money at a $350 billion valuation. Typically, in an IPO, a company sells roughly say 20% of its shares to the public. But even if these companies only sell say, 10%, you're talking about 128 billion in stock issued from just databricks. Space X and Anthropic alone. Based on those valuations just cited, and that's. That is a very positive way to look at it. These three could raise proceeds that are two or three times higher than what Renaissance expects for the year. And for what it's worth, under $28 billion is not that far from the record150.42 billion in total IPO proceeds from 2021. Not a good thing. By the end of 2021, the market eventually ran out of steam and we had a brutal correction that lasted most of 2022. The flood of supply from those 2021 IPOs, and that horrible wave of SPAC mergers was a major contributor to the end of the bull run. Again, this isn't something that's going to happen overnight. Maybe none of these used privately held companies decides to come public. Maybe the deals only happen toward the end of the year. But it might be sooner than you think. Just today, the Wall Street Journal reported that Elon Musk wants to complete a space X IPO by July of this year because he's trying to get ahead of the anthropic deal. The article also said that Musk wants to raise money in order to build data centers in space. Up. Whatever. For now, just know that these potential mega deals present a real risk factor for later this year. Because in order to raise cash to buy newly issued stocks, giant money managers will typically have to sell something else. And that will put downward pressure on the entire market. What happens? Your best stocks, which you think everything's fine about, may get sold down just so the big funds can raise enough money to buy databricks. Anthropic and Space X. Bottom line, when stocks were the market often gets hit with a flood of new supply from secondary offerings from insider sales from IPOs. The flood hasn't hit yet, and we don't know how serious it will be. But there's a very good reason to believe that it's coming sometime this year. So keep your eyes open. Oversupply has killed many a bull. It could always do it again. Net money's back after the break.
