Cramer warns AI stock rally may mask debt risks

Jim Cramer, host of Mad Money, told investors on Tuesday that the recent surge in artificial intelligence stocks does not mean the sector is fully stabilized. AI-related shares rose for a second consecutive day, driven by news that banks and Blackstone agreed to provide $63 billion in financing for Anthropic. This funding will be used to purchase computing hardware from Broadcom.

Cramer expressed relief that capital is returning to the tech sector, but he advised viewers to look beyond the rally. He noted that the optimism does not fix the underlying financial pressures affecting data center operators. Those companies suffered sharp declines late last week before the current rebound began.

The host identified three specific risks that could derail the recovery. First, he pointed to smaller AI infrastructure firms, often called neoclouds, which are accumulating large amounts of debt to build out data centers. Rising interest rates threaten the profitability of this borrowing. Cramer specifically named CoreWeave, Nebius, and Iren as companies facing this pressure. CoreWeave shares rebounded by nearly 8% on Tuesday, but Cramer warned that negative news about the firm is likely to follow positive headlines.

Second, Cramer questioned the structure of the Anthropic deal. He argued that the financing is circular because Anthropic is borrowing money to buy Broadcom's equipment rather than using its own profits. This arrangement leaves Anthropic with a debt burden tied to its primary hardware supplier.

Third, Cramer warned that current bond market conditions may not last. The 10-year Treasury yield recently fell below 5%, and oil prices declined, reducing the cost of borrowing for AI firms. However, the Federal Reserve is set to announce its interest rate decision Wednesday afternoon. Chairman Kevin Warsh will hold a press conference immediately after the announcement. Additional volatility could arise from the midterm elections next week and ongoing tensions in the Middle East.

Cramer stated that most data center companies, with the exception of Nvidia, lack substantial cash reserves and must rely on borrowing. He argued that high rates are making the return on that borrowed capital uncertain. While he remains a strong believer in the long-term AI build-out, he is not prepared to declare the sector safe until these financing challenges are resolved.