Jim Cramer: Wavering faith in data centers is shaping market action

CNBC's Jim Cramer on Tuesday identified the data center as a dominant market theme, arguing that many stocks tied to technology are declining as investors worry that companies have overspent on them.

"The data center has been the single biggest investment story for months on end, even if it's not always obvious from the averages," he said. "This sea-change, one that we are undergoing in real time, with the data center theme suddenly going from positive to negative, is buried within the broader indices, but it's like a living, breathing, seething animal, a snorting bull turned into a grizzly, scratching and clawing back the gains in your portfolio."

For the past several months, large tech companies invested heavily in data centers, spending billions to compete with each other in the race to develop the most advanced artificial intelligence products. But recently, Cramer said, "the data center feels fragile," as investors wonder if Big Tech went too far.

Titans like Amazon, Alphabet, Meta, Oracle, Microsoft as well as Tesla have been counting on the need for a lot of data centers, he said. Industrials like Cummins are also dependent on the theme, along with nuclear power outfits Constellation Energy and Vistra, as well as infrastructure company Vertiv, he continued. Cramer pointed out that many Magnificent Seven stocks are notching losses with the exception of Apple, saying the iPhone maker hasn't spent a lot of money building out its own AI platform like many of its peers.

Cramer suggested that investors pay close attention to Nvidia's upcoming earnings report, which he said "holds the key to countless tech companies." Nvidia provides essential equipment for data centers and has been the leader in technology that enables advanced AI. The report will provide clarity about the AI darling's customers and how much product it is selling, he continued, and once it's out, investors can focus more broadly on other sectors.

"Consider Nvidia's earnings to be what we call a clearing event," Cramer said. "All of the sturm und drang will already be done and the damage will be complete."

Disclaimer The CNBC Investing Club Charitable Trust holds shares of Nvidia, Amazon, Alphabet and Meta.