Jim Cramer says AI trade is giving way to retailers, software and J&J

Jim Cramer said the AI trade that powered many of this year’s largest market gains is losing momentum as investors sell some infrastructure-linked winners and move money into companies with growth drivers outside data centers. On CNBC’s “Mad Money” on Tuesday, Cramer described the move as either a market broadening or, in his words, "fleeing."

The shift has hit stocks tied to artificial intelligence server demand after a strong first half. Cramer pointed to Micron, Western Digital, Seagate and Sandisk, whose shares had surged as shortages of memory used in AI servers strengthened pricing power for those companies.

What is happening to the Jim Cramer AI trade?

Cramer said investors are taking profits in companies that benefited from tight supply and exceptional pricing in AI-related memory and storage. The mechanism is straightforward: when demand for AI servers runs ahead of available components, suppliers can charge more, but stocks may fall once investors expect those shortages and margins to fade.

Western Digital illustrates the reversal. CNBC reported that the stock closed at an all-time high of $746 on June 18, when it was up 333% for the year. Less than six weeks later, the shares had fallen nearly 40% from that record.

Cramer said he has seen repeated boom-and-bust cycles in this part of the technology market. He told viewers that parabolic moves caused by shortages should be sold because, in his view, those shortages end and stocks begin to reflect that risk before the business cycle fully turns.

Which stocks did Cramer say are attracting money now?

Cramer said investors are reallocating capital rather than leaving equities altogether. He highlighted Costco and Walmart as retailers that have been gaining attention as money moves away from some AI infrastructure names.

Software companies that had been under pressure have also participated in the rotation, according to CNBC. ServiceNow was up about 11% month to date, while Salesforce had risen roughly 16% over the same period.

Johnson & Johnson also drew attention Tuesday after reaching an intraday all-time high before giving back part of the advance. The company said Monday night that it had reached a $5.5 billion settlement to resolve ovarian cancer litigation related to its talc products. CNBC noted that the amount was below the roughly $8 billion proposal rejected by a judge two years earlier.

Cramer distinguished between AI-linked companies he sees as dependent on temporary pricing power and those he believes have stronger demand support. He said he remains positive on Nvidia and Intel, arguing that their businesses are backed by more durable demand than the shortage-driven earnings lift seen in memory makers.

CNBC disclosed that Cramer’s Charitable Trust, the portfolio associated with the CNBC Investing Club, owns shares of Salesforce, Costco, Johnson & Johnson, Intel and Nvidia.

This story draws on original reporting from CNBC.