Chip Production Challenges and AI Demand
Jim Cramer stated that chip stocks are experiencing an upward trend because companies are unable to manufacture new chips at a sufficient pace, not due to a lack of desire but rather a deficiency in necessary tools.
During his CNBC segment on Friday night, Jim explained, "We don’t have enough equipment to expand production of these chips, and we can’t put it together fast enough."
Micron's stock saw a significant increase of 7.76% on Friday. The company specializes in memory and storage technology, particularly for artificial intelligence applications. Its CEO, Sanjay Mehrotra, informed Jim that there are no indications of demand slowing down.
Sanjay remarked, "AI driven-demand is accelerating. It is real. It is here, and we need more and more memory to address that demand." The company has commenced construction on a 600,000-square-foot facility in upstate New York. This project is part of a broader initiative to invest $200 billion in new chip production within the United States.
Industry Giants Struggle to Meet AI Order Volume
Regarding the new massive facility, Jim highlighted that its completion is years away and will not provide immediate relief. The impetus for such construction is largely attributed to the CHIPS Act, which offers U.S. chipmakers government subsidies to foster domestic production.
However, the physical construction process takes time, meaning the current chip shortage will persist for a considerable period. Jim noted that as long as demand remains strong, prices are expected to continue their ascent.
Beyond Micron, Jim identified other chip stocks that have already experienced substantial gains. Western Digital, Seagate, and Sandisk are all benefiting from the current supply crunch. He also pointed out that this shortage was not entirely unforeseen, contrasting it with the previous year's sentiment of an oversupply of chips. Jim credited Nvidia as the sole company that accurately anticipated this market reversal.
Jim commented, "Only Nvidia really saw it coming. They teamed up with the best of the best, Taiwan Semiconductor, to make all the high-end chips that are needed. There’s no bottleneck there. There’s no shortage, at least not in comparison to memory."
Global Geopolitical Events Largely Ignored by Markets
Despite ongoing global developments, stock markets have continued to advance. The S&P 500 has seen an increase, as has the Dow Jones, which has gained 3% year-to-date. The Nasdaq has risen by 1.2%. Investors have shown no inclination to divest from the market, even in the face of significant international political discussions.
Anthony Esposito, the head of AscalonVI Capital, shared with CNBC that markets have demonstrated a consistent disregard for geopolitical risks over an extended period.
He observed, "Israel bombs Iran — the S&P 500 was down 1% overnight and closed down just 50bps. U.S. bombs Iran — almost no reaction." Esposito further suggested that events involving Venezuela and Greenland could potentially benefit U.S. markets due to their implications for energy resources, rare-earth minerals, and infrastructure development.
Europe's Stoxx 600 index has climbed by nearly 4%, even as speculation surrounds potential actions by Trump concerning Greenland. In Asia, the MSCI AC Asia Pacific Index has reached a new high, posting a gain of over 5% this year. Both Japan's Nikkei 225 and South Korea's Kospi indices have also set record highs.
Finally, the U.S. Supreme Court is anticipated to issue a ruling soon regarding Trump's tariffs. While the decision has not yet been made public, investors appear to have already factored in potential outcomes and adjustments stemming from the White House's initiatives in 2025.