AI stocks rebound, and why J&J’s earnings guidance cut is not cause for concern
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. The Nasdaq Composite rose more than 2.5% on Thursday, on track for its best session in more than a month, as strength in chipmakers and other AI-related names lifted the tech-heavy index. The gains come after early morning media reports that Situational Awareness, the AI-focused hedge fund started by a former OpenAI employee Leopold Aschenbrenner, was looking to find buyers for some of the firm’s holdings. Shortly after, CNBC’s David Faber reported that Situational Awareness reached a deal to sell its entire book of public investments to Citadel. Before the market opened, Jim Cramer said the unwinding of these levered hedge-fund bets would help the AI trade, which has faced heavy selling in recent weeks. “I have always believed that when you clear out the people who have to sell, like this gentleman, you get a bottom,” Jim said. That’s exactly what we’re seeing Thursday, with chipmakers Micron and Advanced Micro Devices jumping over 17% and 13%, respectively. Club holdings Nvidia and Broadcom were also up, though to a lesser degree. Ancillary AI plays also got a lift. Qnity , the electronics material supplier, surged almost 8%. With our belief that forced selling in AI stocks could be winding down, we nibbled on some Qnity shares and upgraded the stock to a buy-equivalent 1 rating. Corning also gained almost 8%, and we would’ve bought shares of the fiber optics cable maker if not for our restrictions. Still, we upgraded it to a buy-equivalent 1. There were also some notable laggards on Thursday. As the AI trade finally picked up again following a weekslong downturn, investors sold off software and healthcare stocks after rotations into both groups. Club name Salesforce shed over 4% in the afternoon, while Adobe and Workday dropped 5.5% and 6%, respectively. Meanwhile, drugmaker Eli Lilly fell almost 4%. Johnson & Johnson cut its full-year adjusted earnings per share late Wednesday to a range of $10.96 to $11.11 from $11.60 to $11.75. That’s never the kind of headline you want to see about one of your stocks. However, the “cut” primarily reflects acquisition-related R & D charges and other deal-related accounting, rather than any deterioration in the underlying business. The pharma giant announced a strategic agreement and collaboration with Sail Biomedicines in developing in vivo CAR-T therapies for immune mediated diseases. This emerging class of therapy involves reprogramming a person’s T cells inside their body to help fight a disease. Eli Lilly is in the process of closing an acquisition in this space with Kelonia Therapeutics. Also, the company completed its $1 billion acquisition of Firefly Bio, which was announced in June. J & J expects the upfront payment and equity investment in Sail Biomedicines to reduce adjusted operational EPS and adjusted EPS by approximately $0.18 in 2026 and $1.28 in 2027. Separately, the Firefly Bio acquisition is expected to reduce adjusted operational EPS and adjusted EPS by $0.46 per share in 2026 and $0.08 per share in 2027. We understand the concern around the lower guidance, but this is not a true operational earnings cut and should not be viewed as such. Shares are down today, but that appears to be more a function of investor sentiment, with money rotating back into AI names and investors taking profits in healthcare. Next up for J & J is an investor call scheduled for Monday to discuss the recent authorization for the Ottava robotic surgical system. It’s another big night of earnings with Apple and Amazon set to report. Before the opening bell on Friday we’ll see earnings from Club names Linde and Eaton . For Linde, we’ll be listening closely to management’s commentary on the broader global economy and industrial activity, with a particular focus on t he electronics and space end markets . Eaton’s last quarter was poorly received, a recent trend on earnings day. However, we expect continued momentum in data center-related orders, which remain our north star for evaluating the business. Other companies reporting on Friday are ExxonMobil , Chevron , AbbVie , and Colgate-Palmolive . (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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