Cramer Laments Semiconductor Rout Despite Strong Fundamentals for Intel and Micron

Key points

• Intel and Micron shares declined by roughly 12% over the past five days, contributing to a historic sell-off in the semiconductor sector.
• Jim Cramer criticized the market's reaction, stating that 'nothing is working' despite the companies delivering strong quarterly results and maintaining solid business fundamentals.
• The broader semiconductor sector index fell 9.9% during the same period, indicating a widespread loss of investor confidence in the group.
• Cramer, a known proponent of Intel, highlighted the disconnect between the companies' financial performance and their stock price movements.
• This latest decline follows a pattern seen in early October, where Micron shares dropped despite reporting strong earnings and a 'great quarter.'

Background

In early October, Micron shares declined following strong quarterly results, a move that contradicted Cramer's bullish stance. At that time, Cramer cited the ongoing strength of the memory cycle driven by artificial intelligence and data-center demand. More recently, Micron's stock surged over 200% year-to-date, driven by a 526% jump in NAND revenue and record gross margins. Cramer and analyst Ben Reitzes projected the stock could reach $2,000, arguing that AI demand has shifted the company from a cyclical to a secular growth model. However, skeptics warned that a forward P/E of 7 and a $200 billion capital expenditure plan exposed Micron to traditional memory cycle risks, with consensus estimates predicting earnings declines by fiscal 2030. Micron CEO Sanjay Mehrotra had also asserted that the traditional boom-bust cycle of the memory industry was over, driven by sustained AI demand, although investors remained cautious due to cyclical fears and margin pressures.

Why it matters

The disconnect between strong fundamental performance and falling stock prices in major semiconductor companies like Intel and Micron highlights significant investor caution regarding AI valuations and cyclical risks. This volatility impacts broader market sentiment, as seen in the 9.9% drop in the semiconductor sector index, and raises questions about the sustainability of the AI-driven memory cycle despite record revenues and strong quarterly results.

What to watch

Investors will likely monitor whether the semiconductor sector stabilizes after this historic sell-off. The market's reaction to strong quarterly results from Intel and Micron may indicate a shift in sentiment regarding AI valuations and cyclical risks in the memory industry. Cramer's continued bullish stance on these stocks, despite the recent declines, suggests he expects the market to eventually recognize the strong fundamentals and secular growth potential driven by AI demand.