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Cramer sheds light on why the sell-off in top stocks isn't based on fundamentals

  • "Mad Money" host Jim Cramer explains why stocks like Apple, Facebook and Nvidia have been subject to profit-taking despite strong fundamentals.
  • As top-performing technology stocks decline, Cramer reviews — and disputes — each bear case.

Declines in some of the stock market's highest-flying technology stocks may have investors second-guessing, so CNBC's Jim Cramer took to the fundamentals to help explain the drops.

"Let me give you my take on the dramatic see-saw-like action in the leaders of this market," the "Mad Money" host said. "First, let's tackle the real cause of the weakness that started last week: technology. Come on, you all know the epicenter here. It's Apple."

Recent talk of the tech giant's iPhone 8 sales being worse than expected has weighed on shares of Apple as well as its suppliers.

Cramer said the worries were overblown, particularly since Apple can't possibly know how many phones it will sell before it sells them.

"Needless to say, the bias on Wall Street always seems to be not that you should own Apple, but you should trade it. In the end, most people who try to trade Apple end up buying high and selling low — the opposite of what you're supposed to do," Cramer said.

The "Mad Money" host compared the stock of Apple to legendary boxer Muhammad Ali, who inspired the term "GOAT," or "Greatest of All Time." Betting against Apple would be like betting against Ali, he said — odds are, you'll lose.

Cramer added that, next to other consumer product companies like Clorox, Procter & Gamble and Colgate-Palmolive, Apple's valuation is still the cheapest of the cohort.

"So, the proximate sell-off cause, at least number one? Apple. Now, I am saying it's been pretty neutralized. Sure, the stock can go lower, but at these levels, it's beginning to reflect the failure of the iPhone 9, and that product doesn't exist," Cramer said.

The second issue plaguing the market is concern over a slowdown in the cloud, a central feature of FAANNG, Cramer's extended acronym for the high-flying stocks of Facebook, Amazon, Apple, Netflix, Nvidia and Google, now Alphabet.

Analysts were struck by Adobe CEO Shantanu Narayen's comments in a conference call that suggested cloud growth was temporarily slowing in one line of Adobe's business.

To add to the pressure, Tesla announced a partnership with Advanced Micro Devices to build an artificial intelligence chip for self-driving cars, a relationship that could curb Tesla's existing rapport with Nvidia. But Cramer said the market was exaggerating that loss as well.

"Remember, the cloud lives in the data center. So if the cloud's slowing, the data center should be slowing, too," he said. "Yet last night Nvidia announced that its new line of chips won business from three of the largest Chinese data center operators out there: Alibaba, TenCent and Baidu, which are growing like mad. I'll match those orders against a defeat at Tesla any day of the week."

Overall, Cramer attributed the selling in these stocks to mutual and hedge funds wanting to rake in solid quarterly profits and some large hedge funds facing redemption, in which managers are required to raise capital to cover costs.

"Bottom line? We're at the end of a good quarter in a good year, and we're seeing profit-taking and forced selling of the winners while some money's going into cheaper stocks and, when you put it that way, there's a kernel of rationality to the entire move," the "Mad Money" host concluded. "Does it mean the selling is over in the high fliers? Nope, it's not the end of the month yet. Does it mean it could be over soon? Maybe, but only when we hear all of those scary stories about crashes of yore in the month of October. But alas, that could give you an even better buying opportunity."

WATCH: Cramer unpacks tech losses

Disclosure: Cramer's charitable trust owns shares of Alphabet, Apple, Facebook and Nvidia.

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