Jim Cramer says AI froth fears overblown with S&P at 20x earnings

Jim Cramer pushed back against dot-com crash comparisons, arguing the S&P 500's 20 times forward earnings is far below the 25 times multiple that preceded the 2000 collapse.

The S&P 500 trades at 20 times forward earnings, well below the 25 times multiple that preceded the dot-com crash, CNBC's Jim Cramer said Tuesday, dismissing bubble fears tied to AI-driven gains.

"There are always outliers. There is some froth, but the froth does not represent what we trade. What we own," Cramer, host of "Mad Money," said.

Cramer cited cooler-than-expected CPI data, strong corporate earnings from Bank of America, Goldman Sachs and JPMorgan, and lower interest rates as evidence the market is not overheated. Goldman Sachs trades at 12 to 18 times forward earnings despite reporting substantial earnings and revenue beats Tuesday, he said. SK Hynix trades at roughly four times 2027 earnings estimates, while Micron is at six times.

"You don't get a dotcom crash scenario without a series of tremendous rate hikes and we simply aren't there yet," Cramer said, adding that new Fed Chair Kevin Warsh did not sound like he would tighten if CPI stays at current levels.

Cramer's defense comes as stocks have surged to new highs over the past year, with enthusiasm surrounding artificial intelligence fueling massive gains in semiconductor companies. Memory-chip makers Micron and Sandisk have jumped more than 243% and 644% this year, respectively, stoking comparisons to the dot-com boom of the late 1990s.

The latest consumer price index report came in cooler than expected Tuesday, easing concerns that the Federal Reserve would soon need to raise interest rates. Cramer's Charitable Trust, the portfolio run by CNBC's Investing Club, owns shares of Goldman Sachs and Nvidia.

"What typifies this market is the inexpensive nature of so many big-cap stocks," Cramer said.

Nvidia, the dominant player in artificial intelligence chips, trades at a similar multiple to the broader market despite its market-leading position, Cramer argued. The stock closed at $203.53 on July 13 with a market capitalization near $4.93 trillion, according to FactSet data. Nvidia reported Q1 FY2027 revenue of $81.61 billion, up 85.2% year over year, and guided Q2 revenue to $91 billion.

Heading into 2000, the S&P 500 traded at more than 25 times forward earnings, compared with about 20 times today, FactSet data shows. "That's a big difference, and while 20 isn't exactly cheap, it's certainly not expensive like 2000," Cramer said.

This article is for informational purposes only and does not constitute investment advice.