The semiconductor business has been a hot 2017 play, but the segment's leaders, Advanced Micro Devices and Nvidia, have been getting hammered, so Jim Cramer took to finding out what is causing their pullback.
"The truth is, what's happening here has much less to do with the semiconductor business than it does with the ... actual business of money management — the perception of what's a bargain versus what's expensive in a portfolio manager's eyes," the "Mad Money" host said.
AMD and Nvidia both make graphic chips for gaming and have growing exposure to data centers. AMD also supplies the personal computer and virtual reality businesses, while Nvidia has ties with the connected car and artificial intelligence.
Both of the companies stock's have also soared. AMD has shot up 362 percent in a year, while Nvidia has seen a 171 percent gain. But AMD slid over 16 percent from its February highs, and Nvidia is down over 18 percent since then.
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"If there's one thing money managers hate more than flat-out losing money on an investment, it's giving up tremendous gains," Cramer said. "After the amazing moves in Nvidia and AMD, you have to believe there were a ton of institutional investors out there who were looking for any excuse whatsoever to ring the register and take some profits."
So when a number of analysts suggested investors should sell Nvidia and Goldman Sachs slapped a "sell" rating on AMD, the stocks became hard to own and funds shed their shares.
Cramer also nodded to the rebounding popularity of cellphone-oriented chipmakers that were all but irrelevant on Wall Street until Apple began to regain its momentum.
"It's live by Apple, die by Apple," Cramer said. "Lately, ... names like Skyworks Solutions, Qorvo, Micron — although much less lately — and Broadcom have come back into vogue, and all of these stocks remain way, way cheaper than Nvidia and AMD."
If you are nervous about owning Nvidia or AMD despite nothing being wrong with the companies themselves, Cramer suggests picking up a diversified name like Broadcom.
"I still like Broadcom, which I think has a lot more upside," Cramer said, adding that the company will soon complete its $6 billion acquisition of Brocade and has a good record of making deals.
"You have to recognize that these two winners are suffering from severe profit-taking, and that's driving cash toward cheaper stocks," Cramer concluded. "[AMD and Nvidia are] doing great, but portfolio managers want to play the Apple cycle right now, provided Apple doesn't crush its suppliers, and they're using the proceeds from their big wins in AMD and Nvidia to do just that."
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