Even though CNBC’s Jim Cramer has long been a fan of Nvidia, a top chipmaker that dragged stocks lower Monday with a major revenue forecast cut, he understood why its stock has lost so much value.
For one, the announcement revealed some “obvious negatives,” Cramer said Tuesday on “Mad Money.” Chinese authorities have unexpectedly cracked down on video games, one of Nvidia’s key end markets; construction in another one of its key markets, the data center, has slowed; and the company still hasn’t completely gotten a handle on inventory overhangs with its cryptocurrency mining products.
The semiconductor maker is also in the midst of a transition that could add even more pressure: the shift from its current generation of graphics chips to its new Turing line of chips, which seem almost too advanced for the companies that need them now, Cramer said.
“That’s why the stock initially got slammed yesterday, … reversing all of its gains for the year,” he said. “That move actually made sense to me. […] Why? Because when companies pre-announce to the downside like Nvidia did yesterday, their stocks almost always take out their 52-week lows.”
In Nvidia’s case, that 52-week low is $124.46, down about $7 from its Tuesday closing price of $131.60. And, in Cramer’s experience, when a company issues an exceedingly negative pre-announcement, “you can’t pick at its stock until it takes out its 52-week lows.”
“Once Nvidia comes down to those levels, then there’s a case to be made that it might be worth nibbling at,” he said, adding that the stock’s late-Monday rally was a sign that buyers were way too eager. “Believe me, that weakness is worth waiting for, and [with] the bounce I expect from Apple and also the not-so-bad news from AMD? I think it’s going to happen. I don’t think it’ll be long-lived.”
Cramer talks Apple, Tuesday’s earnings surprises
Five companies were able to push past Wall Street’s negativity on Tuesday by reporting earnings results that weren’t as bad as investors thought, Cramer said.
The lucky five? 3M, Pfizer, Whirlpool, Advanced Micro Devices, and, of course, Apple.
“When you have expectations that are through the floor, and you don’t get huge blowups like you did with Nvidia, then you have tinder for a fire, ” Cramer said. “That’s just what we got from these five stocks.”
As for Apple, its many haters are at a loss for negative things to say about the company now that its first-quarter earnings came in less awful than many feared, Cramer argued.
“The issue for those who hate Apple? Sorry, guys. No more new ammunition,” he said.
Nucor CEO on Trump steel tariffs
The United States’ tariffs on steel imports are indeed improving business at top U.S. steelmaker Nucor, the company’s chairman and CEO, John Ferriola, told CNBC on Tuesday.
The company is currently investing about $3.2 billion in new facilities and fueling organic growth at old ones, Ferriola told Cramer in a “Mad Money” interview. That includes a $1.3 billion investment in a new steel plate mill in the Midwest, “the heart of the plate-consuming market in the United States,” the CEO said.
But, until the tariffs came into effect, Nucor would’ve had to think twice about spending so much on a new plant, he said. The tariffs, put through in June 2018 by the Trump administration, targeted countries that “dumped” steel into the United States, a practice that involved artificially lowering commodity costs.
Off the charts: Chipmaker challenges?
One of the market’s top semiconductor-based exchange-traded funds is signaling some obstacles ahead for the chipmakers’ stocks, Cramer said Tuesday after consulting with one of his favorite chartists.
The chartist, Carolyn Boroden — the brain behind FibonacciQueen.com and one of Cramer’s RealMoney.com colleagues — has a unique methodology. She uses Fibonacci ratios, a number series discovered by medieval mathematician Leonardo Fibonacci that repeats throughout nature, to spot patterns in the stock market.
Specifically, she measures past swings in a stock or an index, then runs them through a Fibonacci prism. When she does this with a chart’s Y-axis, price, it shows her potential levels of support or resistance. When she uses the X-axis, time, it flags particular times when a stock is most likely to change course.
So, with investors fretting about weakness at longtime industry stalwart Nvidia, Cramer and Boroden found it worth circling back to the chipmaking group via the VanEck Vectors Semiconductor ETF, also known as the SMH.
The Fed’s dilemma: Jobs
Federal Reserve Chair Jerome Powell is stuck between a rock and a hard place going into his Wednesday speech, which may offer insight into how the central bank is approaching its interest rate agenda, Cramer said Tuesday.
One key issue is the U.S. labor force, which is under pressure from a few counteractive forces, he said: restricted immigration, corporate tax cuts and a record-low U.S. birth rate. That is now feeding into Wall Street earnings, with Chili’s parent Brinker International reporting disappointing second-quarter results due to higher labor costs.
But Cramer, who co-owns two restaurants, said these pressures can often be “artificial,” with higher minimum wages putting pressure on sales at the same time as entry-level workers are becoming harder to find. For a massive company like Brinker, the expectation that part of the tax-cut windfall will go toward employee benefits adds to the pain.
“What’s Powell supposed to do?” Cramer asked. “Should he tap the brakes on the economy to make it easier for the Brinkers of the world to keep their labor costs down? Should he tighten so that Chili’s can cut its menu prices? It’s not like the Fed can magically create more workers.”
And if the Fed chief is unwilling to let inflation tick up slightly in the form of higher wages, which benefit the working person — while long-term trends like the rise of online and bargain shopping push prices down — things could get more difficult from here, the “Mad Money” host said.
“You can see the pressure that Powell’s under,” he said. “I’m urging him to wait despite the pressure, as there will be adjustments and innovations that help companies keep their labor costs down. It’s always been that way and it’ll always continue to be. I just want him to know that giving workers a bigger piece of the pie was not only expected, it was practically government-mandated and it is good for our country. Please, Chairman Powell, why not let this wage inflation play out a little more? Consider it an experiment to see how the new economy adjusts. If I’m wrong, you can always raise interest rates later on.”
