Cramer urges investors to look beyond AI rally as debt risks persist

Jim Cramer told CNBC's Mad Money on Tuesday that investors are declaring the artificial intelligence trade safe too early. He argued that a two-day rally in AI stocks, driven by news that banks and Blackstone will provide $63 billion in financing for Anthropic to buy hardware from Broadcom, does not erase the underlying financial pressures in the sector.

The optimism in the market followed a strong session on Monday, which was partly sparked by Anthropic's initial public offering filing. However, Cramer noted that the data center trade took a hit late last week and the recent gains do not fix the core issues. He said he is pleased that money is flowing back into tech, but he does not think that is a reason to call all clear. Instead, he suggested investors look at other sectors of the economy.

Cramer identified three main risks that keep him cautious. First, he is worried about smaller AI infrastructure companies, often called neoclouds, that are taking on heavy debt to build out data centers. Rising interest rates make it harder for these firms to sustain their borrowing costs. He specifically mentioned CoreWeave, whose bonds have yielded as much as 15 percent, along with Nebius and Iren. Despite CoreWeave shares rebounding nearly 8 percent on Tuesday, Cramer warned that negative news about the company could return.

Second, Cramer questioned the structure of the Anthropic deal. He pointed out that Anthropic is borrowing money to purchase Broadcom's technology rather than using its own profits to pay for it. He said many investors do not grasp that the financing was arranged by Broadcom to buy equipment from Broadcom. This dynamic, in his view, makes the deal less reassuring than it appears.

Third, Cramer noted that the calm in bond markets may be temporary. Oil prices have dropped, and the 10-year Treasury yield has fallen below 5 percent, which eases pressure on AI companies that need to borrow. However, these conditions could reverse. The Federal Reserve is scheduled to announce its latest interest rate decision Wednesday afternoon, followed by a press conference from Chairman Kevin Warsh. Midterm elections next week and potential tensions in the Middle East could also add volatility to the market.

Cramer stated that he remains an unabashed believer in the AI build-out. However, he said the industry's financing challenges have not changed. He emphasized that, with the exception of Nvidia, these data center companies do not have a lot of money and must borrow. He noted that rates are getting high enough that returns are becoming uncertain.