Semiconductor stocks have suffered heavy losses in recent days, but CNBC's Jim Cramer stated on Tuesday that there is still a compelling reason not to give up on this sector.
VanEck Sem Token Issuance nductor ETF Has Fallen 7.2% for Six Consecutive Trading Days. Cramer Warnings suggest that rising oil prices and interest rates could prolong this round of selling. However, he believes that chip stocks are now being traded more and more without regard to the fundamental aspects of individual companies, which obscures the strong demand that drove a significant rise in this sector earlier this year.
To illustrate this point, Cramer mentioned that he recently visited an Apple showcase store where he saw devices equipped with more personalized Siri and advanced smart home technologies. He said that this experience highlights the fact that increasingly complex consumer products require more computing power and memory, which also creates more opportunities for chip manufacturers.
“Before you decide to give up on semiconductor stocks because you can’t bear the pain, go and visit some stores first,” said the host of “Mad Money.” “See where these chips are used. They appear in the most unexpected places. Don’t just focus on the semiconductor index; look at the devices themselves.”
Taking Micron, a storage chip manufacturer, as an example, it is said that its fundamentals are being overshadowed by broader selling pressure. The company has become one of the biggest winners in the wave of artificial intelligence development, with demand for storage chips far exceeding supply. Micron has 26 long-term customer agreements, which currently account for about 35% of the company's revenue and extend until 2030, with negotiations for 2031 having already begun. He stated that these take-or-pay contracts require customers to fulfill their financial commitments, which gives Micron greater visibility into future revenue. “If Micron didn’t have these agreements, I would be worried,” Cramer said.
Moreover, the demand story is not limited to storage chips. Cramer also mentioned Intel and AMD, stating that the CPU they produce are almost essential components of every machine.
Cramer acknowledges that after the significant increase earlier on, this sector may experience further declines, but he argues that investors should not overlook the fundamental demands that underpin these gains. "It's reasonable to see a substantial pullback after these stocks have gone so far," he said, "I just think that when you see these devices and understand those scenarios of explosive growth, then you can understand why Micron, Intel, or AMD have been on the rise all along."
“It’s not all about Situational Awareness – those families used borrowed money to push so many semiconductor stocks to unsustainable levels in the hands of uncontrolled hedge funds,” said Cramer. “Many times, it’s simply a genuine demand.”
The portfolio managed by CNBC Investing Club holds shares of AAPL, INTC, and MU, which belong to Charitable Trust. Cramer.
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