Jim Cramer talks how the Fed and tech earnings moved markets Wednesday

Key Concepts

Federal Reserve Rate Cut: A 0.25% reduction in interest rates by the Federal Reserve, aimed at stimulating the economy by lowering borrowing costs.
Artificial Intelligence (AI): A transformative technology driving productivity, innovation, and anxiety about job security.
Nvidia: A dominant AI chip manufacturer, considered an "intellectual engine" for companies embracing AI.
Alphabet (Google): Parent company of Google, integrating generative AI (Gemini) into its core search and cloud services.
Meta (Facebook): Embracing AI extensively, despite a significant one-time tax hit impacting earnings.
Microsoft: Strong quarterly performance, particularly in its Azure cloud division, with its OpenAI stake influencing stock performance.
Real Economy vs. Data Center Economy: The distinction between traditional industries and the burgeoning data center sector, with the latter showing stronger growth potential.
Caterpillar: A company that successfully pivoted to a secular growth story by focusing on turbines and power equipment, benefiting from the data center boom.
Generac: A backup generator manufacturer whose core business is tied to natural disasters, lacking sufficient data center exposure for strong growth.
DraftKings: A sports betting company facing scrutiny over the honesty of gambling, with potential growth contingent on expansion into key states.
Square (Block): Cramer's positive view on its CEO's ability to understand and cater to younger demographics.

Economic Landscape and Federal Reserve Action

The regular economy received a much-needed boost with a 0.25% rate cut from the Federal Reserve. This move is expected to immediately lower borrowing costs for various short-term loans. However, longer-term loan rates are primarily influenced by the bond market. This intervention comes at a time when consumers are hesitant to make large purchases, such as vacations or even steak dinners, due to job security fears and rising costs driven by inflation.

Fed Chief Jay Powell indicated that another rate cut next month is not guaranteed, a cautious stance that contributed to a dip in the stock market averages. The Dow Jones Industrial Average fell 74 points, after being up for most of the day. The S&P 500 ended minimally down, while the Nasdaq Composite managed a 0.55% gain, despite being significantly higher earlier in the session.

The AI Revolution and Job Anxiety

Despite a low unemployment rate and immigration crackdowns, a palpable sense of job anxiety is prevalent. This worry is largely centered around Artificial Intelligence (AI). Nvidia, a $5 trillion company and one of Cramer's favored stocks, is at the epicenter of this concern. Cramer argues that companies at the top must recognize Nvidia as an "intellectual engine" that enhances productivity, intelligence, and cost-efficiency, enabling the creation of goods and services at lower costs.

Alex Karp, CEO of Palantir, acknowledged the potential for individuals to be left behind by AI but stressed the importance of adaptation and pivoting. Many executives, Cramer suggests, are stuck in a "run game" mentality, failing to leverage AI's forward-passing capabilities.

Tech Giants' AI Integration and Earnings Reports

Three major tech companies – Alphabet, Meta, and Microsoft – have "gone all in" on AI. These companies, which some believed were heading towards irrelevance a few years ago, have actively embraced AI to maintain their dominance.

Alphabet (Google): Parent company of Google, Alphabet has integrated its generative AI platform, Gemini. Despite initial bugs, Gemini is performing well. Alphabet's core search business grew by 15%, with no apparent cannibalization from Gemini. Google Cloud revenue exceeded expectations by over $1 billion, showing a 34% increase. Profit margins were also better than anticipated, even after accounting for a $3.5 billion one-time charge for a European fine. Cramer views Alphabet as a potential star performer.
Meta (Facebook): Meta has invested heavily in AI. While its revenue surpassed expectations, earnings were significantly impacted by a "colossal earnings miss" due to a one-time tax bill. Meta claims this is a one-time event and anticipates lower future tax bills. Without this hit, Meta would have earned $7.25 per share, exceeding Wall Street's $6.72 forecast. The company raised its full-year revenue forecast but also increased its capital expenditure forecast by a larger margin, which was a point of concern for investors. Given the stock's 28% rise prior to the earnings report, Cramer believes the after-hours sell-off might be an overreaction.
Microsoft: Microsoft delivered a strong quarter with both top and bottom-line beats. Its cloud infrastructure division, Azure, saw accelerated growth of 40%. Despite this, the stock experienced a decline in after-hours trading, which Cramer attributes to the stock "coming in too hot." The stock had previously surged on news of Microsoft's 27% stake in the for-profit arm of OpenAI. Cramer suggests that without this prior run-up, Wall Street might have viewed the results as a "yawner."

The "Real Economy" and the Data Center Boom

Cramer shifts focus to the "real economy," emphasizing that companies within it have themselves to blame for missing out on the data center boom.

Caterpillar: The stock surged over 11% after reporting. This success is attributed to the previous CEO's strategic decision to transform the company from a cyclical boom-and-bust model into a secular growth story by emphasizing turbines and power equipment. These divisions were the star performers, providing essential power for data centers. Cramer highlights this as a visionary move.
Generac: In contrast, Generac, a maker of backup generators with some data center exposure, saw its stock decline after a disappointing quarter and a lowered forecast. Cramer points out that Generac's core business remains tied to natural disasters, and it failed to pivot sufficiently towards the secular growth of the data center market.

Cramer concludes that while the Fed's rate cut is beneficial for the struggling "real economy," the best-performing companies in this sector are those with significant exposure to the data center economy.

Stock Performance and Cramer's Picks

Alphabet: Declared the "winner" of the evening's stock parade.
Microsoft: Positioned to take second place.
Meta: Initially appeared strong but ended up last among the three tech giants.

Investor Inquiries and Cramer's Advice

Square (Block) vs. Klarna: Cramer advises against swapping Square for Klarna, expressing confidence in Square's CEO's ability to understand and cater to younger consumers. He views Square as a genius in his own right.
DraftKings (DKNG): Cramer likes DraftKings but acknowledges concerns about the perceived honesty of gambling. He believes the company's potential hinges on expansion into key states like Texas, Florida, and California.

Upcoming Mad Money Segments

The episode previews upcoming segments featuring:

ServiceNow: An enterprise software powerhouse reporting after the bell.
Brinker International: Cramer will analyze the earnings of this restaurant company.
Otis: The elevator maker's performance and outlook will be discussed.

Contact Information

Viewers are encouraged to follow Jim Cramer on X (@JimCramer), tweet questions using #MadMentions, email Mad Money at MadMoney@CNBC.com, or call 1-800-743-CNBC.