Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street. Markets: The S & P 500 is falling Monday in a heavily bifurcated tape, with artificial intelligence-related stocks leading the market lower as the market tries to figure out the implications of Chinese AI startup DeepSeek . There are a lot of debates happening and lots of questions that we simply don’t know the answers to. The bearish view on the chip stocks is that if DeepSeek was truly developed with such little investment like it claims, then the so-called hyperscalers — a group that includes the likes of Amazon , Microsoft and Alphabet -owned Google — should shift their focus to developing a similarly efficient model. If large language models become more efficient and require less compute to train, then the hyperscalers no longer need to invest so aggressively in chips made by Nvidia and Broadcom . That’s why those two stocks are both down more than 15% in afternoon trading. The impact on Amazon, Microsoft and Alphabet is unclear. If the group scales back their AI spending, they’ll see a huge uplift in their profits. This may be why Meta Platforms , another hyperscaler, is actually up on the day. Of course, the companies must first recreate a more efficient model. But should the group be dinged for overspending billions of dollars on their previous AI model development? Does the commoditization of AI hurt their business models? If we don’t need as many data centers as previously thought, that’s a negative for electrical equipment supplier Eaton , a Club name. The same goes for Vertiv , another provider of data center solutions, and anything tied to power generation such as GE Vernova . Eaton is down about 15%. Vertiv is plunging almost 30%, and GE Vernova is down nearly 22%. Another school of thought is that DeepSeek’s advancements are actually very bullish for chip demand. The argument is that if AI can be developed more efficiently, adoption and usage will grow, which in turn will increase the demand for chips. Greater adoption could be great for software developers with a proven AI product. That’s why Salesforce is the top gainer in our portfolio and one of the best-performing names in the entire S & P 500. The bottom line is there’s a lot of uncertainty. Still, when looking at our three problematic stocks Monday – Nvidia, Broadcom, and Eaton – we lean as more buyers than sellers given their double-digit percent decline. It’s worth noting: With Monday’s pullbacks, all three stocks are now trading well below the levels at which we recently trimmed our positions, a tough reminder that discipline always trumps conviction. Health care rallies on : Outside of DeepSeek-impacted corners of the market, the action on Monday looks pretty orderly. The big rotation into health-care stocks is continuing and playing directly into our hands thanks to our recent buys of Eli Lilly , Bristol Myers Squibb and Danaher . It’s also rewarding us for our patience with Abbott Laboratories and GE Healthcare , which we cashed in on today. Abbott Labs, in particular, is trading at its highest levels since February 2022. This group of stocks was largely hated last year, especially after the November presidential election and nomination of Robert F. Kennedy Jr. to lead the Department of Health and Human Services. The comeback in health care is a good example of how great uncertainty can create great buy opportunities. Other pockets of strength. Also, companies that tend to do better with lower interest rates are rallying, such as Home Depot and Stanley Black & Decker . The consumer staples sectors, another unloved group like health care, also is having a strong day, a result of investors seeking safety and dependability amid the AI uncertainty. Up next: We’ll be looking for any comments on DeepSeek and the pace of spending by the large AI players, but it may not come until Wednesday night when Meta Platforms and Microsoft report their earnings. Those earnings calls will be must-listen events because management will likely be asked point blank what DeepSeek means to their AI investments. Before then, we’ll see steelmaker Nucor’s quarterly report after the closing bell Monday. Tuesday is a busy day with Boeing, General Motors, Lockheed Martin, RTX, Royal Caribbean, Kimberly Clark, and several others reporting earning. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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Every weekday, the CNBC Investing Club with Jim Cramer releases the Homestretch — an actionable afternoon update, just in time for the last hour of trading on Wall Street.
