Jim Cramer talks his use of AI chatbots during earnings season

Key Concepts

AI spending, hyperscalers, Alphabet (Google), Sundar Pichai, AI overviews, Nvidia, Jensen Huang, China's tech needs, AI chatbots (Grok, ChatGPT, Claude, Meta AI, Perplexity), ServiceNow, AI accuracy, winner-take-all AI race, Lockheed Martin, Northrop Grumman, Snowflake, Honeywell, Danaher, IonQ (quantum computing).

AI Spending and its Justification

Cramer addresses the skepticism surrounding the massive AI spending by hyperscalers like Google and Microsoft. He argues that Alphabet's recent earnings, where they added $10 billion to their capital expenditure budget, demonstrate the necessity and urgency of these investments. Sundar Pichai, Alphabet's CEO, stated that "AI is positively impacting every part of the business, driving strong momentum this quarter. Search delivered double digit revenue growth." Pichai also highlighted that AI overviews have over 2 billion monthly users across more than 200 countries and territories and 40 languages. Cramer emphasizes that AI overviews are a "game changer" that keeps users coming back to Google search. He believes that the company with the most advanced AI optimized data centers will ultimately win.

Nvidia's Role as an "Expander"

Cramer stresses the importance of Nvidia in the AI landscape. He quotes Jensen Huang, Nvidia's CEO, who claims that their hardware and software stacks can provide a fourfold return on investment. Cramer believes this is accurate, based on Alphabet's performance. He argues that Nvidia is not a "tax on the system" but an "expander" and a "force multiplier." He also touches on the US government's stance on allowing China access to Nvidia's AI technology, suggesting that China needs Nvidia's chip stack to advance, making them more willing to negotiate on trade.

AI Chatbot Reliability and the Importance of Accuracy

Cramer shares a personal anecdote about using AI chatbots to gather information on earnings reports. He recounts an "embarrassing incident" where an AI platform provided completely false information about ServiceNow's stock performance. This experience reinforces his belief that skepticism towards AI is justified because of the unreliability of some platforms. He concludes that the most accurate chatbot will win the AI race, similar to how Google dominated search.

The Winner-Take-All AI Race

Cramer posits that the AI race is a "winner take all, loser take none situation." He believes that companies are not overspending on AI but potentially underspending, as the only reason to spend less is if a company doesn't believe it can win. This is why Nvidia is so valuable, and why Apple needs to enter the AI arena. He believes Google is still in the conversation and might even win the battle for AI, just like it won the battle for search.

Listener Questions and Stock Analysis

• Lockheed Martin (LMT): In response to a question about Lockheed Martin's ability to sustain long-term growth given program charges and reduced cash flow, Cramer expresses confidence in the company's leadership. He also mentions his preference for Northrop Grumman (NOC) in the defense sector, highlighting that the stock is up significantly since a guest broke a positive story about the company on his show.
• Snowflake (SNOW): Regarding Snowflake, a listener asks whether to sell or trim their position after a positive note from Morgan Stanley but recent insider selling. Cramer advises holding onto the stock, citing Sridhar Ramaswamy's positive impact and the potential for long-term growth.
• Honeywell (HON): Cramer questions whether a drop in Honeywell's stock price after an earnings beat represents a buying opportunity. He plans to check in with the CEO to gain further insight.
• Danaher (DHR): Cramer expresses confidence in Danaher's recent report, solidifying his investment thesis.
• IonQ (AQ): Cramer announces that he will be covering quantum computing companies, starting with IonQ, to provide updates on this emerging industry.

Conclusion

Cramer's analysis centers on the critical importance of AI investment and accuracy in determining the future leaders in technology. He emphasizes Nvidia's pivotal role, the potential for a winner-take-all scenario in the AI race, and the need for companies like Apple to actively participate. He also addresses listener questions about specific stocks, offering his perspectives and analysis. The key takeaway is that AI is not just a trend but a fundamental shift that will reshape the tech landscape, and companies that prioritize investment and accuracy will be the ones to succeed.