Cramer says the market needs ‘some new heroes' to create a sustainable rally

• CNBC’s Jim Cramer on Monday discussed how a market rally can be sustainable, with investors paying up for stocks with tangible earnings success.
• “This market needs some new heroes to go higher — at least one, ideally more. Otherwise, we’re going to lapse into that pure multiple expansion thing, which makes the market get more risky than I’d like,” he said.

CNBC’s Jim Cramer on Monday opined on what is necessary to create a sustainable market rally, saying that the market needs companies with tangible reasons for gains.

“This market needs some new heroes to go higher — at least one, ideally more. Otherwise, we’re going to lapse into that pure multiple expansion thing, which makes the market get more risky than I’d like,” he said. “Doesn’t mean it can’t keep going up, but it does mean the rally from here would be a lot less sustainable, and, yes, a lot more dangerous.”

Cramer first pointed to tech stocks like Nvidia, with the semiconductor company priced much higher than expected this year due to its prominent role in generative artificial intelligence. Cramer said Nvidia’s stock has soared for two reasons: Investors are willing to pay more for the same earnings — known as multiple expansion — and because the company’s earnings turned out better than expected. But to him, the stock is soaring mostly for the latter reason.

“Why should we care? Because, ultimately, we don’t want to pay more and more for the same earnings, right?” Cramer asked. “When that happens, they get more expensive, and they get risky. We want stocks to turn out to be reasonably priced based on higher earnings because that kind of rally is sustainable.”

He then applied the same principle to Microsoft, saying the company’s use of generative AI has also made it popular on Wall Street. He said last year that few investors knew that generative AI would lead to such huge increases in earnings. Cramer added that Microsoft’s gains are based on tangible potential and higher earnings, not just “love” for the company that would lead to fleeting stock success.

“Those are big chunks for the market. They got us to here. If we’re gonna go further, another group will need to turn out to be too cheap,” Cramer said. “There has to be a better earnings story out here that we just do not know yet.”

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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Nvidia and Microsoft.

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