Jim Cramer says investors aren't ditching tech — they just want cheaper stocks

CNBC's Jim Cramer said Wednesday investors aren't abandoning artificial intelligence or technology stocks altogether — they're ditching expensive stocks.

"There's no revulsion to the data center or AI stocks or even momentum plays, it's just that when bond yields go up, money managers dump their expensive stocks and swap into cheaper ones," the "Mad Money" host said.

Some of the market's highest-flying technology stocks have come under pressure in recent weeks, fueling concerns that enthusiasm for AI is fading. Cramer said that's not the case and investors have simply become less willing to pay premium valuations for stocks that need near-perfect results to keep climbing.

A common way to compare valuations is the forward price-to-earnings multiple, which divides a company's share price by its expected earnings per share over the next 12 months. The higher the multiple, the more investors are paying for each dollar of expected earnings.

"The buyers aren't fleeing from the data center or tech in general, they're just fearful of high multiple tech stocks, ... because they have to be perfect," he said.

Cramer pointed to MongoDB, which trades at roughly 52 times expected earnings over the next 12 months. Shares of the database software company dropped around 13% Wednesday despite reporting better-than-expected earnings and upbeat guidance.

Dell, on the other hand, trades at roughly 16 times forward earnings and rallied 16% after reporting strong results Tuesday. For Cramer, the contrasting reactions show that investors remain willing to buy technology and AI stocks when valuations and fundamentals are attractive.

"As it happens, many of the data center plays have high multiples, but the ones that don't, like Dell, are doing fine," Cramer said.

Nvidia offered another example, he said. Despite being at the center of the AI boom, the chipmaker trades at roughly 17 times expected earnings over the next 12 months — significantly cheaper than many slower-growing technology companies.

Cramer said Nvidia's relatively low multiple reflects skepticism that its extraordinary earnings growth can continue as investors question the durability of data center spending. He said those concerns are misplaced, pointing to Dell's results as evidence that customers are beginning to generate meaningful returns from their AI investments.

"What the heck is Nvidia doing with such a low price to earnings multiple despite the phenomenal growth?" Cramer said.

For Cramer, the recent sell-off isn't evidence that the AI trade is broken. Investors still want AI and technology stocks, he said, but they're becoming much more selective about the price they're willing to pay.

"We hear that investors are fleeing the artificial intelligence trade. Or that they don't want to own technology anymore. Or the data center's become a nightmare. Or, worst of all, the momentum trade is broken," he said. "These are all wrong. ... They're getting the symptoms right — these groups truly are going down — but missing the real cause."