The stock market may be hitting new highs on the back of artificial intelligence enthusiasm, but CNBC's Jim Cramer said Tuesday that comparisons to the dot-com crash are wrong. His argument rested on three things: valuations, earnings, and interest rates.
Cramer, host of Mad Money, said the froth that some investors see in the market does not reflect what most people actually own. According to CNBC, he acknowledged that companies like SpaceX can fuel the perception of excess, but argued they are exceptions rather than a sign of broader market overheating.
"There are always outliers," Cramer said. "There is some froth, but the froth does not represent what we trade. What we own."
Memory-chip makers Micron and Sandisk have jumped more than 243% and 644% this year, respectively, and those kinds of gains have pushed some investors to draw comparisons to the late 1990s tech boom. Cramer pushed back on that comparison directly.
At the peak of the dot-com era heading into 2000, the S&P 500 traded at more than 25 times forward earnings, according to FactSet data. Today that number sits at around 20 times. Cramer called that a meaningful difference.
"That's a big difference, and while 20 isn't exactly cheap, it's certainly not expensive like 2000," he said.
Tuesday also brought a consumer price index report that came in cooler than expected, which Cramer said eased concerns about the Federal Reserve needing to raise rates. New Fed Chair Kevin Warsh spoke the same day, and Cramer read his remarks as a signal that tightening was not imminent if inflation stayed at its current level.
"You don't get a dotcom crash scenario without a series of tremendous rate hikes and we simply aren't there yet — new Fed Chair Kevin Warsh spoke today and he didn't sound like he would tighten if the CPI stays at these levels," Cramer predicted.
On earnings, Cramer pointed to Bank of America, Goldman Sachs, and JPMorgan, all of which reported what he described as substantial beats on both earnings and revenue Tuesday. Those banks trade at roughly 12 to 18 times forward earnings, which he called cheap. His Charitable Trust, the portfolio run by CNBC's Investing Club, owns shares of Goldman Sachs.
"These are all ridiculously cheap," Cramer said. "And you think that's frothy?"
He extended the same logic to technology stocks. SK Hynix trades at roughly four times 2027 earnings estimates, he said, while Micron sits at six times 2027 numbers. Nvidia, despite its dominant role in artificial intelligence infrastructure, trades at a multiple similar to the broader market. Cramer's Charitable Trust also owns shares of Nvidia.
"What typifies this market is the inexpensive nature of so many big-cap stocks," he said.
The argument Cramer made Tuesday was not that the market has no risk or no pockets of excess. It was that the conditions necessary for a dot-com style collapse, most importantly a series of aggressive rate hikes driven by runaway inflation, are not currently in place. With the latest inflation data running cooler and the Fed chair not signaling imminent tightening, Cramer said the market's foundation looks more solid than the headlines about AI gains might suggest.
