Mad Money w/ Jim Cramer 10/6/26

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1:05Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. Other people are my friends. I'm just trying to make you a little bit of money. My job is not just to entertain, but to teach you about stocks. So call me at 1-800-743-CBC. Tweet me, Jim Kramer. Bubble? Momentum? Greater Fool Theory? Charlatans at work? Or maybe just a case of what could possibly go right and what will continue to do so. Like so many investors right now, I'm struggling with these outside moves in only one part of the market, stocks related to the artificial intelligence business. Like it or not, they're the real winners here.

1:44They're the ones that are moving this market. I found in my career that people are too negative, too critical about the prospects of many companies that actually have a long runway of growth. That's why when I look at, say, an AI-related stock, I am a little more predisposed than most in this business to buy it. Rather than figure out what could go wrong, I like to ponder what could possibly go right. Now, if you're thinking like that, then this was probably a good day. Dow gaining 203 points, S &P climbing 0.58%, NASDAQ gaining 0.45%. Good gains, but not nearly as great as they were earlier in the day.

2:16I always like to point that out. Now, I want to tell you, in full disclosure, that I'm borrowing this what could possibly go right phrase from the excellent new business book slash tell-all written by my friend, restaurateur Danny Meyer, because I think it gets to the heart of the issue. Sure, we're not talking restaurants, but we're talking scale businesses. I think when I'm trying to figure out which companies could be part of the next AI wave, when AI is still very much about this market, I like to say to myself, what could possibly go right with that company? Right now, this stock market is pretty much divided between the winners, which mostly relate to artificial intelligence, and virtually everything else, which doesn't.

2:58Sell, sell, sell. Sure, there are some stocks from different sectors that are still investable. Lilly and Moderna and the drugs, GLP-1, melanoma shots, respectively. Valero and Phillips 66 because of the shortage of refinery capacity in the midst of this war with Iran that's done serious damage to oil infrastructure. But sadly, that's really about it. And not all of them win consistently. Moderna had a horrible day today. No matter what time frame you pick, one month, three months, six months, a year, it's the same stocks over and over again that dominate the winner. So AMD, SanDisk, Bloom Energy, CrowdStrike, Dell, Marvell.

3:35Do I really have to mention them all? You know them. You know them, including the big hyperscalers like a meta platform at Microsoft, which have come up with winning AI products. I have tried my best both here and in the CMBC Investing Club to shine a light on these stocks, to buy them from my trust and share my positive opinions quite vocally. But I find that no matter what I do, there is still tremendous resistance. So how should we view this sector, the market that is providing almost all the gains? I think there are three different camps going here right now. We're going to go from least appealing to most appealing.

4:10The most damning view, which is unprecedented going for it, can be summed up as just too good to be true. I mentioned last night that we liked pattern recognition in this business. The skeptics recognized that this AI rally does look a lot like the wonderful run-up in the dot-coms, followed by the horrendous crash in March of 2000. I traded in that period. I started a company that soared and then crashed in that period, but stayed alive. I challenge anyone who can match my dot-com credentials and my history. I think the vast majority of companies that IPO during that dot-com era were playing with free money from the public, from you.

4:43Not unlike the money being given to a lot of the companies involved in AI right now. Those companies were all part of the great Internet build out, which knew no bounds, just like AI right now. It turned out that while the Internet was revolutionary, most of these companies were either pedestrian or premature, with the exception of Amazon, the not yet public Google. Everything else was dross. People lost fortunes owning chimerical companies, fraudulent enterprises, and businesses sponsored by venture capital that were just trying to dump them on the public before they went under. The one thing these companies didn't have was profits.

5:18When the public money was gone, so were 330 companies from that village. Game number two, it's secular growth, stupid. I wrote How to Make Money in Any Market as an ode to secular growth. When you have it, you get money thrown at you. When you don't have it, the money stops. AI undeniably has secular growth at scale. Right now, we have a rising interest rate environment. It's very difficult for most companies to generate upside when rates are going higher, unless they need no capital to thrive or capital is still flowing freely because the secular growth possibilities are so huge. Sound like AI?

5:52Everything else is either checkmated by rates or stuck in a rut of little to no growth, perhaps with dividends that are no longer competitive with the bond market. The Fed chief's serious about crunching inflation. The president's serious about fighting Iran. The oil traders are serious about having enough crude to meet demand. So inflation doesn't seem all that transient. As a matter of fact, it's getting embedded. So we gravitate to a handful of stocks that can post strong growth in this environment with readily accessible capital, and most of those are tied to AI. Today was Power Day, specifically nuclear power, because Google signed a 20-year contract to purchase nuclear power from Constellation Energy.

6:24Constellation jumped 12 percent. Vistra, another utility with nuclear power. and GE Vernova, which makes nuclear power plants, as well as NACI's turbines. They all had very big days, as is typical when a contract is signed like this. On any given day, there can be too much enthusiasm for the AI cohort, at least at some point during the day. Today, they open too high. They shock us with higher earnings. Even if no one's really shocked. But what they mostly do is grow without needing to borrow money, for the most part. And that gives them an unstoppable quality in this environment. That's what happened today with Marvell Tech, where CEO Matt Murphy raised his forecast for multiple years to come.

7:00Matt will be with us tomorrow on Squawk on the Street if you want to hear why he's so bullish on his company's data center future. Finally, there's the third camp, which is the one I increasingly find myself in. And that's the aforementioned Danny Meyer camp, where you must ask, what could possibly go right about a company? In this camp, you own stocks of companies that are run by really smart people who are aware of the opportunities of AI. and you think that they're actually going to figure them out and make a lot of money. When Meta was at$530 a few months ago, I didn't think, oh, what a bunch of chowderheads.

7:30They don't have anything going in AI. I thought that Mark Zuckerberg and his dream team are brilliant and they're going to figure something out. That's exactly what they did with Muse, their agentic AI platform that's ideal for small businesses. Now Meta's at$738. That was easy. When Microsoft was at$350 three months ago, I didn't think the best times were behind them. I said, yeah, they're smart people. They're going to figure out this copilot. And with that Azure Web Services business, they're going to make a ton of money. Well, guess what? They did. And now the stock's at$529. AMD makes CPUs and GPUs.

8:04Lots can go right. Intel's building semiconductor foundries. We need more of them. And it has CPUs. Again, lots can go right. The gating factor for growth is safety cybersecurity. That's CrowdStrike. That's Palo Alto. When I query about 80 % of the S &P 500 about what can possibly go right, you know what? I can't even think of anything for the most of them. I can't. Sure, that can change when the war ends. Until then, though, the AI-related stocks give you most of the opportunity for something to go right, not the others. Now, you're welcome to say that the first camp is correct. It's a bubble.

8:34I don't agree. Bucket two is traditional security analysis. I like it, especially when secular growth scales or gets bigger and bigger. But it's bucket three that intrigues me because of its power of elimination. Yes, I want be diversified, and I certainly run a diversified charitable trust. But right now, the only thing that diversification brings is the power to dilute the good in some sort of weird Gresham's Law abomination. Regardless, I'm sticking with diversification because when I break my own rules, I tend to get hurt. Fortunately, the rules allow what we call overweighting. And because of that, a lot of things can still possibly go right with my stocks in the trust.

9:07But I want to stick with the AI data center plays as much as I can. Is it a bonanza? Well, because the investing club Charitable Trust also owns health care, some retail, some financials, some special situations. And those are just tough sledding right now. But the bottom line, as far as I can see right now, the only thing that can possibly go right for the non-AI stocks is a lowering of inflation and a decline in rates. But what could go right with AI? If you aren't asking that question, you aren't making enough money in this market. Let's go to Jeffrey in California. Please, Jeffrey. Hi, Jim.

9:41How are you doing? I'm doing well, Jeffrey. How are you doing? Very good. Good to hear your voice. Listen, I have a question about Dutch Bros. I bought it several years ago. It went down, then it went up, and I was in the black, looked very happy with it. Now it's down again below where I bought it. If I'm thinking about long-term, out a few years, is this a good stock to own, or should I get out of it? All right, it's down 36%. I happen to like the business. There's a competitor that's come in very hard, and we also know Starbucks is coming, I think it's coming back under Brian Nichol. But at this price, with a$6.8 billion market cap, now$36, at$39, I think you've got a great place to start.

10:20The chart's horrible. Be aware people are going to be dumping it. If it goes down, it'll feed the fire. $39, then$36, then$33 is the way I would do it. $25,$25,$25, and then at$30, I'd actually buy maybe 50 shares. Let's go to Rad in Texas. Rad. Hi, Jim. Thanks for taking my call. Of course. Yeah, hi, Jim. Thanks. Yeah, I'm 68 years old, retired, and I want to balance my portfolio a little. I'm looking at a long 10-year weekly chart of waste management, WM, and it seems like stock fund supported around 200. Is this a good level to add to existing position for a long term? Okay, so Jim, I actually went through this exercise just yesterday.

11:03I said, oh, man, look at this. It's finally off the 202 schneid. It's going up to 20728. I bet you the thing's breaking out. that I looked and it's got a double top, blah, blah, blah. But I will tell you, at 25 times earnings with a pretty decent growth and a good CEO, Jim Fish, I would put some on here. But remember, it was just a little bit lower. Don't buy a full position. Put some on and then see if the market can take it down a little or buy some more. Let's go to Chuck in Florida, please. Chuck. Hey, Jim. Chuck from Boynton Beach. How are you? I'm doing well. Looking forward to going to Boynton Beach in a couple of months.

11:34What's happening? Jim, I'm frustrated with the stock. I've got to ask you about. This stock had fantastic numbers in Q3. It's supposed to have even better numbers in Q4. But other than today, where everything went up, it's hardly moved. I want to get your thoughts and forecasts for Broadcom. OK. Jeff Marks and I, you know, we're just in trust with me. We talk about it every day. I said, can you believe it? Broadcom is up. And he said, yeah, it's finally going up. It's above where it wasn't reported. Now, what happens when you see that, and I got to tell you, Chuck, when you see that it's now above where it was when reported the so-called bank quarter, it means the prospects are probably better.

12:14Don't sell it here. I did trim because we have so much of these, but I'm not going to sell the rest. I'd say ride it with me. Did a good analysis of it for the Travel Trust very recently. Let's go to Mark in Texas, please. Mark. Bo-bo-bo-bo-booyah. Hi, Mr. Kramer. Mark, what's happening? Hey, this is Mark from San Antonio, Texas. I'm a first-time caller. I've been watching for about 20 years, and I thank you for all your wisdom, your teaching, and your books. I just want to quickly really thank you for putting me on the NVIDIA bug, and I found a good place to buy it in April of 2020, and that's helped me become an IRA millionaire.

12:51So I owe a lot to you. There you go. We want these NVIDIA millionaires. I love to meet you. I love to call you. I see them on the street when I'm out walking around. I say I had a microphone. You know, people, I saw a guy who liked microphone today. I wanted to say to him, listen, NVIDIA doing the breakout, but I'm glad you stuck with it. Too many people traded it. They didn't believe. They thought it was going nowhere. They were in and out and in and out like all this trading stuff. It doesn't work. You have to own. You can't trade. How can I help you? Absolutely. Well, my question today is about a drone stock.

13:24Given that drones and their associated technology may be a big part of the future defense, I bought about a third of a position in AVEX. And I know you interviewed the CEO. The company's future appears promising. But I know that the defense sector isn't too bright right now. So what are your thoughts on AVEX? Look, you said the right thing. The defense sector, it just doesn't matter. I'm very troubled with the defense sector. It's just another sector that had its day. That's how I feel about it. And every time I look at it, I think, you know what? I'm looking at yesteryear, even though you would think, given the state of the world, I'd be looking at tomorrow.

14:02Right. There's always a case to be made for what could possibly go right. And that's what I try to focus on, particularly when it comes to AI. On May Money Tonight, CBS shares are pulled back. Could this be a buying opportunity? Because, boy, the stock was much higher. I'm going to break down the bear and the bull case. And even as the broader NASDAQ makes record highs, some of these chip stocks are doing a lot better than others. Don't miss my analysis of one underperformer that could be the next to catch on. And I'm following up on a stock you called about that makes diagnostics for dozens of types of cancer.

14:35Don't miss my deep dive on Braille. So stay with Kramer. Don't miss a second of Mad Money. Follow at Jim Kramer on X. Have a question? Tweet Kramer. Hashtag Mad Mentions. Send Jim an email to madmoneyatcnbc.com. or give us a call at 1-800-743-CNBC. Miss something? Head to madmoney.cnbc.com. There are three kinds of investors that listen to this show. Those protecting what they've got, those looking for solid returns, and those swinging big. Most tools pick a lane. VectorVest doesn't. Every stock gets three scores. Value, safety, timing. You decide what matters most. Stop overthinking what to buy and sell.

15:25Go to VectorVest.com slash mad. Get 30 days for just 99 cents. VectorVest provides stock analysis tools, not personalized investment advice. Terms at VectorVest.com. Ever notice how every new AI tool asks you to explain your business to it all over again? Google Workspace with Gemini skips that. You get Google's AI built right into the premium versions of Gmail, Docs, Sheets, and more. No new tools. No extra logins. Just one subscription that gives you personalized AI right inside your actual workflow. Make work less work. Try Google Workspace with Gemini at goo.gle slash workspace with Gemini.

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16:41Has the stock of CVS Health finally run out of gas? After a phenomenal run from late 2024 through July of this year, the stock has now pulled back almost 22 % from its highs. So we have to ask ourselves, is this a viable pullback or has CBS turnaround been derailed? First, let me give you some quick history. From early 2022 to the end of 2024, CBS was lost in the wilderness. A lot of that was from Aetna, their health insurance business. Many people put off medical care during the pandemic, so they had to pay for a ton of procedures once COVID was in the rearview mirror. At the same time, Aetna had been underpricing its Medicare Advantage plans like pretty much everyone else in the industry, frankly.

17:21CBS also made some really large acquisitions whilst we didn't like them. The numbers kept deteriorating, so ultimately the old CEO got the boot and the board brought in David Joyner to run the business. By the spring of 2025, I started recommending the stock was in the 60s, part because CBS seemed to be turning itself around, but mainly because it had achieved sole survivor status With Rite Aid long gone and Walgreens going private and closing many of its stores, CBS has become the last man standing in many cities in the drugstore space. In the end, these guys fixed their medical care advantage problem long before the rest of the industry.

17:53The business starts improving. CBS raises its earnings forecast repeatedly over the course of 2025. Everything seemed back on track. In fact, when CBS reported May, they delivered a phenomenal beat and raise quarter that fueled the stocks run from$80 to a four-and-a-half-year high of$110 and change in July. And then it just rolled over. In early August, the company reported another seemingly excellent beat and raise quarter. This was a huge upside surprise with a very strong forecast. But management also mentioned some complicated issues with their Caremark pharmacy benefits management business, issues that spooked a lot of investors.

18:32Now, some of these problems have been bubbling up for a while. Basically, there's been a lot of noise related to the government's 340B drug pricing program, which requires drug makers to participate in Medicaid to sell certain outpatient drugs at discounted prices. Basically, if you get a prescription from hospitals serving vulnerable communities, the drug makers need to give you a discount. And as a pharmacy benefits manager or PBM, Caremark does a lot of business handling those transactions. But the drug companies have gotten more picky about when they'll offer these discounts. And a bunch of hospitals have sued CVS, alleging that they siphoned off about a quarter billion dollars worth of 340B profits from 2020 through 2025.

19:10Then in July, a couple more headwinds emerged. First, the Centers for Medicare and Medicaid Services announced a proposed rule change that would dramatically reduce Medicare payments for drugs acquired through this same 340B program. Currently, Medicare pays the drug's average selling price plus 6 percent. But under the proposed rule change, Medicare would pay the average selling price minus 33.4 percent. Minus. That's a major difference. Several in July, CBS announced that Caremark had reached a settlement with the FTC resolving a dispute that dates back to the Biden administration. There was no monetary penalty.

19:46But basically, the Caremark business now needs to be more transparent about drug pricing. So how much of a problem was this stuff? Well, when Matchman talked about it on the latest conference call, it really freaked people out. First Madden said even in the second quarter, Caremark, quote, experience some pressure in our 340B business as the environment for this program remains dynamic. End quote. I always hate to hear the word dynamic. That means bad. But more importantly, CFO Brian Newman said, quote, we expect the previously discussed market dynamics in our 340B business to continue and result in a headwind in 2027.

20:21end quote. 2027. So the drug pricing rule changes will continue to weigh on their numbers. Secondly, CBS said it now expects Caremark to see membership declines next year for two primary reasons. First, because of the FTC settlement, CBS is planning to have Caremark price its plans more conservatively, meaning these plans will be expensive, possibly leading to a loss of market share. Second, many of the health insurance companies that Caremark partners with are changing their product lineups to adapt to the more complex environment. They're even exiting certain markets because it's not worth it to them anymore.

20:53That's bad for Caremark's clients, but at least it's an industry-wide problem for these PBMs. Those negatives sent the stock down from 140 to 96 over the course of the next couple of sessions. But then it's just kept drifting lower ever since. But, and very big but, the actual quarter was great. Even if Caremark has some heroin, it ends on fire and the drugstore business is strong. That's what just kind of shocked me. I mean, this is incredible. all in this same piece of Caremark information. Sure, management had some question and commentary about one part of the business, but they raised their full-year forecast substantially and also said some reassuring things about next year's earnings.

21:31They really stressed that despite whatever new issues Caremark is facing, the earnings growth story will remain on track. But none of that has been able to help the stock find its footing. So where do I come down? Do not get me wrong. The Caremark business is worse than it was three months ago. According to Bank of America, this 340 BSU could cause a 45 cent hit to earnings next year. Not insignificant for a company expected to earn$8.52 per share in 2027. But man, OK, the stock has plunged from 110 to 86. A possible 5 % hit to next year's earnings should not send a stock down 22%, knocking nearly$30 billion off the company's market cap.

22:13Especially not when CVS remains very strong. aside from Caremark. I want you to look at it this way. Stock now sells for less than 11 times the midpoint of this year's earnings forecast and barely more than 10 times what CBS called the floor of next year's forecast. The number one drugstore in the country has now become insanely cheap. Now, I don't blame anyone for getting spooked near the highs because this story got a lot more complicated. Most investors don't want to deal with anything complicated. But down here at$86 and change, I think CBS Health, it has finally become too cheap to ignore.

22:41The overall earnings growth story remains tracked In fact, in the end, management wanted to be transparent, so they went into depth on the looming PBM issues and really worried people. But remember, we're talking about a proposed change to the 340B Medicaid reimbursement rules. Not the change, a proposed change. We won't know if it'll become a real rule change until next month. And even if it does, President Trump already tried something similar in 2018, and the Supreme Court unanimously struck it down, although it took a few years. All right. This story is not a simple one, which is scaring off a lot of people and the possibility of disappointment from the Caremark's vision.

23:14I'm saying it's real. But that's why the stock's at 86 and not 96 or 106 or 116. The bottom line, I do not think Caremark's problems, even as they could be difficult, should be enough to turn you off to CVS at 11 times earnings. While it could get cheaper, it's already too cheap to ignore. It's too late to sell, considering that anything draconian with Caremark is likely at this point already priced into the stock of CVS. They have money. It's back after the break. Coming up, Kramer is seeing an opportunity for investors to make a move into OnSemi. He's breaking down why next. Ever notice how every new AI tool asks you to explain your business to it all over again?

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24:41No matter your industry or role, your agent has the skills to help every team stay in their flow. Seriously, make work less work with Gemini on Google Cloud. Check response, subscription required. At Jared Jewelers, We know it's about more than fine jewelry. It's the moment they open the box. That smile they can't hide. Knowing you chose exactly right. Because the right gift can bring a lifetime of meaning. A promise. A milestone. A memory in the making. Make every moment unforgettable. Find great gifts starting at$250. Jared. Make the holiday last forever. Shop Jared Jewelers.

25:30This has been a great year for the semiconductor space, but some chip stocks are doing a lot better than others. Today, I want to talk to you about one of the laggards on Semiconductor, which makes power management and sensing chips for a host of industries, especially the autos, industrials, but increasingly, yes, the data centers. For most of the time that I've followed on Semi, it's been viewed as an automobile play. Even as recently as last year, the auto end market made up 51 % of their sales. Autos are regarded as one of the worst markets because they are so rate sensitive. And rates, as we know, have been trending higher.

26:01Industrial was 28%, and everything else, including the data center, was just around 21%. Their chips are used in advanced driver assistance systems, as well as infotainment platforms that have become ubiquitous in new cars. These guys made out like bandits during the electric vehicle boom because EVs needed a lot more content. And then the stock spent years drifting lower after interest in electric vehicles faded. One semi peaked at$111 in the summer of 2023, then sank to the 30s for stabilizing a year and a half ago. At that point, it started rebounding, but without that much momentum. One semi stock didn't really come back to life until the spring, when it more than doubled from late March to early June.

26:40The darn thing shot from$55 to$135. Now, some of that's because the company poured a solid quarter in early May. Very strong guidance. Mainly, though, see, I think Wall Street finally recognized that OnSemi started gaining traction in the AI data center space. Their chips have long been focused on regulating electricity use and distributing power efficiently, which is exactly what you need if you run a warehouse full of red hot servers. When OnSemi reported in May, for example, management said that their AI data center business had accelerated the quarter, more than doubling year over year, growing 30 percent just from the previous quarter.

27:13In early August, they said they expect the AI-related revenue to double this year. So the stock caught fire because Wall Street loves the semiconductor company, the AI kicker, even if the main business is chips for cars and trucks. That's how OnSemi got its groove back earlier this year. But it lost that groove a few weeks later. Near the end of June, this company announced a deal to acquire a company called Synaptics for$7 billion in stock, and the market hated it. Synaptics makes chips and software for human-machine interfaces. Think touchscreens, fingerprint sensors, high-quality displays, voice recognition, noise cancellation.

27:50They also made some inroads in AI with a platform that runs real-time machine intelligence on local devices rather than rely on the cloud. And that makes it faster. They're not in the data center itself, though. They help power AI within the Internet of Things, which is why Synaptics seems like a winner once we start seeing robots, which we know will be one of the biggest markets in the sector. Orange sent me a pretty compelling argument for the merger. They argued that combining with Synaptics would make the company a much stronger player in the AI infrastructure ecosystem, especially once we get to physical AI.

28:22Think autonomous vehicles, the aforementioned robots or augmented reality systems. They also projected they could rack up$200 million in cost savings. There was just one problem with the deal. It was the price. OnSemi was willing to pay$7 billion in stock for Synaptics, even though the business was valued at just$2.5 billion as recently as March. Wall Street saw this as the mother of all overpays. In response, OnSemi saw its stock plunge from$119 to$90 in a single session, nearly a 24 % decline. For the next few months, both stocks drifted lower. Some of that was industry-wide weakness in July.

28:57But then OnSemi reported an unremarkable quarter in August, and nothing seemed to turn the thing around. By mid-September, it was trading$65, down more than 50 % from the June highs. What a roller coaster. And because this was an all-stock transaction, every decline in OnSemi led to a decline in synaptics. But in the past few weeks, the whole situation has changed. It changed for the better, and the stocks were back to$86. You know what? I think it's not done going higher. First, three weeks ago, OnSemi held an Investor Day meeting, where they made a bunch of big announcements, including an embedded power platform for the data center.

29:30Basically, a way to get more efficiently, a way to more efficiently get electricity into the high end ships. There were new customer announcements, like a strategic technology engagement with Subaru. And there were also some financial targets thrown around. They're talking about having a$213 billion addressable market by the end of this decade. Initially, Wall Street was not impressed. OnSemi stock fell 9 % on the day of the event. This is some wild, crazy trader. Some analysts called the financial targets underwhelming. But in retrospect, that was the turning point because the stock didn't rallied in 12 of the 14 sessions after the investors had climbed 30 percent.

30:03Best of all, last Thursday night, we learned that OnSemi and Synaptics had renegotiated the terms of their deal. Rather than$7 billion in stock, they're now paying$5.7 billion in cash. Everybody wins. OnSemi gets a much more reasonable price. Synaptics gets a fixed price for their shares rather than taking payment on OnSemi's wobbly stock. Both names roared on Friday in response. As I see it, this is terrific news. The Onn semi-Synapix merger made a ton of sense. Just they were paying too much. Now they're getting the same assets at a much more reasonable price. Onn shares are back at$86 at this point, up nicely from the mid-September lows, but still down immediately from those June highs.

30:39I think that means you're still getting an attractive entry point. The company's high exposure to the auto market presents a risk here because autos, as I mentioned, don't thrive in a high interest rate environment. But with the stock down nearly 50 points from its highs and all the other semis kind of right near their highs, I can't bring myself to be all that worried. Here's the bottom line. After getting obliterated when Wall Street rejected the expensive synaptic stock acquisition, one semi has finally started rebounding, aided by the fact that they just renegotiated a much lower price for the deal.

31:08While this is mostly an auto and industrial focused chipmaker, that hasn't changed. They do have a rapidly growing AI infrastructure business that I think the market will keep paying up for. Now, this synaptic steel is no longer a problem. I like the story. And if you want to buy a laggard semi that can play catch up, you can do a lot worse than buying some on semi. Let's take calls. Let's go to Riley in South Carolina. Riley. Hey, Mr. Kramer. Hope you're doing all right. I'm doing fine. How are you? I am doing very well. I was curious on your thoughts on Astaire Labs. You know, AsteroLabs, look, first of all, I'm going to tell you, this is one of the situations I try to explain in my book.

31:51It's a great company, but it is one expensive stock. It's up 27 today. A lot of people like this semiconductor connectivity. That was because of Marvell Tech. Because it went up 27 off of Marvell, I am not going to recommend the stock. It's at 97 times earnings. Let this one come in. Let's go to Sam in Pennsylvania. Sam. Jim, what's up? I've had an eye on Tower Semi for a while now. The stock's recently achieved 270 % growth in its silicon photonics business. Right. So I'm curious what you think of Tower Semi as a only$28 billion market cap. All right. Tower Semi, again, is a company that did well off of Marvell because that's something that Matt Murphy talked about.

32:33He will be on tomorrow morning on Squawk on the Street. I think this is a little bit cheaper stock, but at the same time, I don't want to pay 66 times earnings either for a stock that's up 120%. Two great companies with stocks that are very expensive, Astera and Tower, just the way it is. Now that the Synaptic Steel is no longer an overhang, I think Wall Street can finally get back to valuing OnSemi for its rapidly growing AI infrastructure biz. Much more made money than that. You alerted me to a little-known diagnostic player called Grail. Now I'm turning in my homework and giving you my take on the stock.

33:05It's pretty darn exciting. Then there's been much to do about France's growing debt problems. But after these stories, should we expect a deluge? I mean, après moi. I'm taking a historical view, an historical view, on whether you need to be worried. And all your calls rapid fire in tonight's edition of The Lighting Round. So stay with Kramer.

33:31So last week I get this call from Josh in New York, and it's about a company called Grail, which makes a blood test that can screen for signals from dozens of types of cancer at the same time. I told him that I thought the stock had more room to run. I mean, comparing a little bit to Moderna, that was at 120 and it's now 187, even if today's nasty biotox sell-off. But I didn't do a good job. And tonight I want to take a closer look because this Grail story has a lot more going for it than I realize. The company had grown out of Illumina, the DNA sequencing kingpin, and then was fully purchased by Illumina in 2021.

34:05Eventually, the regulators forced them to sell Grail on antitrust grounds, so they distributed the stock to their shareholders in June of 2024. It's been all over the place. Now, you understand, this thing has been a true roller coaster. On February 20th, Grail's stock got cut in half after a major clinical trial missed its primary endpoint. Britain's National Health Service tested their cancer screen and found that over the course of three years, it did not cause a statistically significant reduction in stage 3 and stage 4 cancer diagnoses in the 12 types of cancer it tests for. This was a long-term study, the idea being that if you catch cancer early, fewer cases of late-stage cancer will show up.

34:48When you dated the data, the test did help them catch a bunch of cancers earlier. But that wasn't the primary metric. Still, the U.S. approval process kept moving. With the FDA taking a broader approach, and two weeks ago, an FDA advisory panel judged that Grail's test is effective, which is usually a good sign that it will get approved, and that sent the stock into the stratosphere. But Grail's rebound began well before then. See, their test is already on the market. You just have to pay out of pocket. Unless you have spectacular health insurance. They need FDA approval so that most insurance companies in the government will cover it.

35:19Even without that, though, it's doing pretty well. While it's much cheaper for insurance companies if they can catch cancer earlier, they're not going to pay nearly$1 ,000 for a semi-proven cancer screen without the FDA's seal of approval first. When Grail reported on May 6th, they posted 37 % revenue growth, test volume rose 50 percent, 5-0. Stock jumped more than 15 percent response. Then it dropped 14.5 percent in August after Grail reported a more mixed quarter. Great revenue growth, but they did a lot of spending, which translated into big EBITDA losses. Of course, the stock rebounded like crazy when we then heard the FDA advisory panel meeting was coming up.

35:58And when the panel's final briefing documents arrived, Grail surged from$80.77 to$107.97 in a single day. Now, keep in mind, that's before the panel even voted. When the vote went in the company's favor on September 23rd, the stock jumped to$125 the next day. By this Monday, it had rocked it all the way to$154. Now, today it got hit with a wave of profit-taking, pulling back to$137. That's why I thought it might be a good day to talk about it, but it's still up huge since mid-September. So is Grail worth buying a bureau? Do we need to be careful about chasing this one? You know I don't like to chase on this show.

36:34Okay, let's talk about the problems the guys are solving first. We have ways to test for certain kinds of cancer, but it's often a pain in the posterior, sometimes literally if you're going in for a colonoscopy. However, many cancers have their test. Grail looks for patterns in DNA fragments circulating in the blood that can indicate the presence of cancer, including some cancers that there's no other test for. Of course, this is just a screening tool. It's not perfect, but it's very easy to do. They just draw some blood. Basically, it's not a replacement for mammograms or colonoscopies. It's another layer of detection that's much easier to do.

37:08Now, Grail has been selling this test without FDA approval since 2021, which they can do because it's not a drug. It's a lab developed test. Different regulations. If they do get FDA approval, it is, though, a game changer for insurance and Medicare coverage. Even though they can sell the test now without FDA approval, the managed care companies are really reluctant to cover tests like this unless the evidence of their efficacy is overwhelming. The evidence for Grail's test is more good but not great. Plus, the test currently costs$949, although they offer lots of discounts. You can get it as low as$699 if you order online.

37:42But that's still a lot for a blood test. For now, the insurance companies see it as unproven. If it gets FDA approval, that's the clearest sign that it works and coverage will follow. But even without that, Grail's screening revenue rose 24 percent in the most recent quarter, test volume up 35 percent. Test volume is rising faster than revenue because they keep offering discounts to encourage adoption. Currently, the company is a long way from being profitable, but they got a clean balance sheet. And in 61 million dollars in cash equivalents and very little debt. Grail recently raised 110 million dollars thanks to an investment from Samsung.

38:13So it's not like they're strapped for cash. And Samsung brings more than capital. The company's intent to commercialize Grail's test in South Korea with potential expansion into Japan and Singapore. More international distribution, more money. All right. So what bothers me? Valuation. And you've been hearing that theme from me for about a lot of stocks that have moved a great deal in the show. Grail is a six point one billion dollar company that currently trades at 34 times sales, not earnings. We've been rejecting stocks to sell at 34 times earnings. This is sales. That means it is very expensive.

38:48But the market for cancer screening is used and the potential for growth is equally immense. So analysts at Mizzou, for instance, estimate the broader multi-cancer screening category could represent an annual market of 15 to 20 billion dollars, depending on pricing and adoption. Of course, Grail won't own the entire category, but they could get a major chunk of it. That's part of the reason why UBS raises its target to$175, citing greater confidence in approval and eventual reimbursement. Guggenheim went to 155, Canaccord 150. That said, the competition isn't standing still. Avid Labs, great company, Garden, are going after the multi-cancer screening business.

39:23But Grail does have a major head start. In the end, I get why Josh is excited about this one. I bet you you are, too. We're talking about a technology that could help find deadly cancers that otherwise escape routine screening. The FDA's advisory vote makes it seem likely that Grail's test will get full FDA approval. The test is already selling well without much insurance coverage. Bottom line here, I think Grail stock can go higher. But I need you to keep in mind it's already run a lot. And so, therefore, because it's up so high, it's become speculative. Start with a small position and build up gradually on weakness.

39:56Maybe the stock will keep getting hammered like it was today. I'm betting that would be a buying opportunity as long as the FDA doesn't end up hitting them with excessively restrictive warning labels. Remember, the fact that it's run so much does make it more speculative. If it could shed some points that could make it a it would therefore be a more solid investment in an area where, you know, there's lots of institutional investor interest. Bad Bunny's back here for the break. Coming up, you've got questions. Kramer's got the answers. Get charged up for a fast fire lightning round next.

40:38It is time to talk for the Lightroom. I'm going to start with Roy in California. Roy. Hey, Jim. How's it going? Not bad, Roy. How about you? AI chip. Good, good, good. This AI chip maker landed a major open AI deal to run its ultra-fast models. I was disciplined. I bought near the post-IPO lows at 165. Last week, Semi Analysis reports NVIDIA is powering their newest fast models with that open AI is powering their new ultra-fast with NVIDIA and the stock got hammered. Sam Altman reaffirmed the partnership. But how does one research firm get so much power over the narrative and all the shareholders suffer?

41:32Is it headline noise? Is it NVIDIA eating their lunch? What should I do with Cerebris? Cerebris, I think, look, Cerebris, good company, too expensive a stock. You've got to start hearing. You're going to hear that a lot from me about AI lately. Good company, too expensive a stock. Let's go to Mark in Iowa, please. Mark. Hi, Jim. I'm glad that I'm an Investing Club member. Excellent. And thanks for the signed copy of the book. Ah, you're a good person. Thank you so much. Yep. Hey, I was listening to you talk about a stock recently, and I've been watching it, thinking about starting a position. It's got a P.E.

42:10ratio of about 13 and about a 6 % dividend. But I noticed that when it was coming down, the volume of sales was a third or a half higher than it is now as it's going up. Now it's about a third of its average or half of its average. What about enterprise product partners? I think what you're seeing is related to the fact that interest rates in 30 years headed towards 6%, maybe 6.25%, which is what I can ultimately expect that could happen. And that's caused the Enterprise Products partners to be weaker than expected. I still like the business. It's a great liquefied, you know, great LNG company.

42:50It's a great—actually, what it does is fractionates oil into all sorts of little pieces that are really important. It's a really well-run company. I think you should own it. Don't focus right now on the bond market. Just focus on the business, which is very strong. Let's go to Catherine in New Jersey. Catherine. Hey, Jim. I'm still up 34 % on this stock for the year, but it's down about 50 % from its summer highs. Do I hold on for a bounce or lock in what's left of the profits? The ticker is AGX. AGX. AGX. Wow. I don't know Argon. I know Argon and I know Argin, but I don't know Argan. And I'm going to have to come back with a more considerate opinion than that, because I obviously don't know.

43:36enough to opine. Let's go to Albie in Arizona. Albie. Hey, Jim, how are you doing? This is Albie from Arizona. Excellent. Good, good. Good to hear. Colin, on behalf of MasTech or MasTech, ticker symbol N-T-Z, curious on your thoughts about their recent price deduction. This thing has been crushed. I mean, it's been crushed. And you know what? It's doing pretty well. It's not even that expensive. But, you know, it's got wind. It helps wind farms and solar farms. And boy, that's the most of the farms that nobody wants. And what can I say? I'm not going to get in front of that kind of selling. And that, ladies and gentlemen, is the conclusion of the Lightning Round.

44:19The Lightning Round is sponsored by Charles Schwab. Coming up, worried the situation in France could upset the markets? Detente de vous. Kramer is cutting through the noise. Next.

44:41I see Paris. I see France. I see a lot of debt in an unstable government. The possibility of the French government having a failed bond auction or simply running out of money and having to, I don't know, sell the Eiffel Tower, is just too juicy for journalists to dismiss. France is supposed to be one of the more proven countries in the EU, unlike most of the other nations in Europe. Think Portugal, Ireland, Italy, Greece, and Spain, also known as the PIGS. Remember that? we were effectively assumed that France will figure it out. But right now, it doesn't look like they will. It looks like there could be big changes in the government, and higher interest rates are coming, and strikes, and unemployment, and actions against immigration.

45:13Every time they try to cut the budget, there are riots. That will then be followed by stories about contagion, and there will be reports mostly exaggerated about how numerous other countries will soon follow in France's footsteps. Before we go down this path, let me tell you what I see happening. We'll get a raft of stories that will scare us into thinking that we're going to be embroiled in a worldwide sovereign debt crisis. We'll hear that France is a mini U.S. and our interest rates will have to go much higher to attract capital, especially from Japan and China. And here's what you need to know.

45:43Nearly 17 years ago, we experienced a huge bond market crisis in Europe. We talked about it every day for years. It seemed intractable. While it was going on, we learned there were plenty of hedge funds and brokerages that either were trying to call the bottom and lost a lot of money or putting on positions, betting on the pings to fail. And when that didn't happen, they lost a ton of money. Everyday French bonds will seem to go lower, sending rates higher, and we'll come in with still one more thing that's wrong besides oil. This drumbeat, people, is coming. It will stay with us, linger much longer than people think, because if Europe's good at one thing, it's kicking the can down the road.

46:13There'll be a ton of protest riots. Each time we'll be worried about bonds from all sorts of other countries, including our own. Near the end, we'll hear that even the data centers can't sell any more debt, and their build-out is going to slow in part because of France. But we won't have a decline in inflation. We'll have stagflation, which means you need to sell everything, as tight relations is a nightmare for the stock market. How will we know we are really at a bottom? It won't be because France has figured out a way to raise money or cut spending and the contagion is over. No, no, that is not how it works.

46:38Not in this game. No, we'll bottom when some hedge fund manager who doesn't reveal his short positions comes on and tells us it's the end of the world and he's selling everything when he's actually short already. When things get bad enough, the European Central Bank will step in just like it did in 2012. I think people are only freaking out about France like this because they don't remember the last European sovereign debt crisis, or maybe they were in diapers, I don't know. In the end, that turned out to be a great buying opportunity. Could be the same this time. Now it's so distant, though, it's time to buckle up.

47:07A story that's too juicy to ignore is just getting started. Sooner or later, the facts will get in the way of the negative story, and we will say fini. But judging by how long it took last time, we'll be seeing these headlines perhaps for as long as years to come. Just remember one thing when you hear the harrowing tales. Panic is not a strategy. I like to say there's always a remark or something. I promise I'll find just for you here on MedMoney. I'm Jim Cramer. I'll see you tomorrow.

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