CNBC's Jim Cramer said he's not in a hurry to rush back into artificial intelligence stocks, despite Monday's rebound in the battered technology sector.
"Even after today's bounce, I think it's too soon to say the coast is clear and it's safe to dive back into the hardest hit AI data center stocks," the "Mad Money" host said, explaining the group faces technical and fundamental headwinds that cannot be ignored.
The Nasdaq Composite rose about 1.1% Monday as investors returned to tech stocks following last week's rout in AI buildout beneficiaries. The S&P 500 gained nearly 0.5%, while the Dow Jones Industrial Average traded nearly flat. The rebound followed a brutal Friday session that pushed the Nasdaq Composite and the Nasdaq 100 below their 50-day moving averages, while the Cboe Volatility Index — known as the VIX and considered Wall Street's fear gauge — climbed above 22 for the first time in four months.
In his Sunday column for Investing Club subscribers, Cramer made clear that he's still a long-term believer in the AI trade. However, he said Monday he sees four hurdles that must be cleared before the data center cohort can sustain another rally.
"I just don't think it's safe to be aggressively bullish on the group until the charts improve, the hyperscalers report, the election's in the rearview mirror, and Anthropic manages to come public," Cramer said Monday. "That's what you need to keep your eyes on before circling back to this newly beaten down group."
On the technical picture, Cramer warned that the VanEck Semiconductor ETF and Roundhill Memory ETF appear to have formed double-tops, a bearish signal that can suggest a rally has run its course. "Worse, the ones that don't have double tops have the most pronounced head and shoulders patterns — that some people think is even more negative — to the point where the only way out seems to be lower," he said. "To the seasoned chartist, these stocks seem to have no bottom."
He also wants the Nasdaq Composite and Nasdaq 100 to reclaim their 50-day moving averages, which technicians use to gauge whether an asset is an uptrend or downtrend. Encouragingly, he said last week's sell-off did not breach the late-July lows reached during the forced unwind of highly leveraged hedge fund Situational Awareness.
Upcoming earnings must confirm that Big Tech remains committed to AI spending, according to Cramer. SpaceX and Meta Platforms report this week, followed by Alphabet, Microsoft and Amazon next week. He also wants evidence that the spending is paying off, particularly through continued growth in companies' public cloud businesses. Cramer's Charitable Trust, the portfolio run by CNBC's Investing Club, owns shares of Meta, Alphabet, Microsoft, and Amazon.
Third, the midterm elections in early November need to pass. Cramer said growing political opposition to data centers has weighed on the industry, but he expects some of that pressure could ease after Election Day on Nov. 3. While the results could initially spark more selling, he said greater political certainty may help AI stocks establish a bottom.
Finally, Cramer wants to see a successful Anthropic IPO, which could be as soon as November, according to media reports. Cramer said "we need to see, at the very end of the spending chain, that this can be a sustainably profitable business that's worth investing in. That's what Anthropic's IPO represents." However, he cautioned that the offering could also divert substantial capital away from other AI stocks.