Why I am taking the other side of the trade that crushed the market Friday

Boy, that was awful; a nightmare. Last week wasn't just a rout; it was an obliteration. We had a lot of streaks and milestones noted — semiconductors, down nine straight days. Egads. CoreWeave back to where it was when it plummeted last time. Oh no. Memory implosion. It can't be. But the simple truth is that this market acted, especially Friday, as if the data center story, the $1.2 trillion or $12 trillion "super-cycle" — in itself a kiss-of-death term, like the coal super-cycle or the fracking super-cycle — is over. That the greatest stock story ever told is over; and you better take every penny and buy Colgate-Palmolive , Coca-Cola , Procter & Gamble and, hopefully, Club name Kimberly-Clark . And all of those AI factories we need? "Desolation Row." Bob Dylan, say it isn't so. How did this happen so quickly? Where were the buyers? I have some answers. Wrong reaction? Let's start by figuring out the reaction ahead of the cause because it might be the wrong reaction. When I look at the breakdown, the concentration of what was being sold last week, culminating in Friday's devastation, it lined up rather perfectly with all of the components of the data center/AI thesis that represents about 25% of the market's market cap, albeit not its absolute percentage, which is far smaller than that. Why the reaction and not the cause? Cart before the horse? No, I don't think so. I believe that what happened last week we will find is an unwind of certain firms' positions coupled with the collapse of some hedge fund we have never heard of that borrowed billions that we don't know about from a firm that hasn't disclosed its own losses yet for lending the manager the money. I could argue that, as my great friend and original TheStreet.com hire, Herb Greenberg, is fond of: This is the end of the line for the debt-fueled hyperscale-hoax. The trillion-dollar con, spawned by Nvidia CEO Jensen Huang's induced moxie to give everyone money so they could buy the latest and greatest graphic processing units (GPUs) from Nvidia, led to CoreWeave's spike in corporate bond yields. That the marginal buyer is now being margined out by the cruel bond market. Reserve judgment Don't be so quick to judge Jensen. Which brings me to the two narratives that we live with every day of our investing life. They are worth parsing. They deserve critical analysis. Let's use last week's action as a paradigm. When Jensen first stumbled on the concept of accelerated computing, he realized that it could be the accelerant needed for something that really didn't exist: gigantic, instant recognition of patterns that unlocked the ability for machines to adopt thinking. Instant pattern recognition of everything. His pal, Sam Altman of OpenAI, saw ways to profit from those who need intelligence artificially. You would think that everyone would have recognized that people would pay for that, but only a few did — and do. Most big tech companies just thought of the back end, the cloud, the pipes, the service to those who wanted to charge for outcomes. As it stands now, only OpenAI, Anthropic and, to a lesser extent, portfolio holding Alphabet via Google's Gemini have capitalized on the movement at scale. But boy, oh boy, have they capitalized on it. Right now, though, given that neither OpenAI nor Anthropic has gone public, there is a universe of activity mostly funded by Nvidia, a longtime Club name, that has allowed the artificial and generative artificial, and now agentic artificial intelligence, to flourish. If Nvidia hadn't provided the seed money, maybe it would have happened eventually. Jensen wants to win. He wants Nvidia shareholders to win. He wants the United States to win. So, he opened his vault and helped fund companies the way venture capital funds help start new enterprises. The skeptics, the critics, the people who depend on things falling apart and the center not holding, just view Jensen's activities as one big legacy of Lucent, the telco equipment company from the turn of the century that did the most to mask how weak things really were by financing their one world of clients until it was obvious that there was very little business to be had without it. Or, to put it in a way Greenberg and his acolytes believe, passionately, Jensen is playing a game of Lazy Susan. He puts the money on the table, he spins it, you take it, and then you buy product from him, and everyone's happy. Having been on the other side of the Lazy Susan table, both when my mother served the turkey and the gravy and when I ran TheStreet.com, my first instinct was to blow the whistle on the activity, and so I did. It was so obviously dirty. I didn't need the goods. I didn't want them. I didn't want the bogus investment, either. Now is not like then The difference between back then and now? Back then, circa 2000, it was obvious that what was known as "vendor finance" was simply benefitting the vendor, as we didn't need the end product of what the vendor was providing. That's the actual crux of the indictment, again. Nvidia is no more than the second-coming of Lucent, and Jensen is simply Rich McGinn, the charlatan who always made the quarter with increasingly preposterous new clients that you never dreamed had the money for the purchases. Brazilian Telco. But of course, they didn't, and it was just Lucent with a chimerical bankroll. In the end, you wondered, was anything even purchased, or did the money never even come off the Lazy Susan at all; it was just spun right back. You have to believe the Lucent paradigm if you think that all of this current-day edifice is worthless or worth a lot less. It fits so perfectly, so elegantly that it comes under the short-selling rubric: too good to check out. The beauty of it all: the whole build-out really got going with Michael Intrator, a former bitcoin miner turned CEO of CoreWeave, taking billions of dollars from Nvidia in return for buying a ton of Nvidia chips to put up data centers, first largely for Microsoft, but now for most of the hyperscalers. This whole circular song, according to the bears — to let up on Greenberg, who is simply the most vocal of the negative narrators — only worked if CoreWeave, run by a darned bitcoin miner, was able to con enough public debt customers into giving it money to hold up its side of the Lazy Susan. It's almost poetry in motion. The poetry stopped this week when CoreWeave's debt yields blew up to over 15%, where the rate of return on CoreWeave's spend is too low to justify the build. If there is no new build, then there are no new Nvidia orders. If there are no new Nvidia orders, then it is game over. That was the storyline. It held up throughout the week even as there was a nice bounce from Thursday's bottom. The collapse on Friday that wiped out the Thursday reversal foretold, some would say, what happens Monday morning. Friday's session devolved into a case of "get out now" for all but the owners of Phillip Morris, Merck , and Club name Johnson & Johnson . But, at the risk of being right, let me offer you the alternative narrative. The bounce Thursday came about from something Jensen said when asked what to do about CoreWeave. The answer was simple: Don't need to do anything; in fact, things were better than we thought. The answer was brilliant: any other wording that said Jensen was ready to backstop — like he was the "Federal Reserve of Nvidia" — and we would know the Lazy Susan table was still in play and Jensen was blissfully ignorant of the now all-powerful critics. I covered the Jonestown mass murder when I was a homicide reporter in Los Angeles. I talked to the relatives of the deceased who drank the original Kool-Aid. So call me someone who knows the Kool-Aid, what it looks like, what it does to you. Nvidia does not market Kool-Aid. Jensen has something that neither Jim Jones nor the bears now had and have: credibility. The fact is, while the public debt market, the one CoreWeave needs to get bigger and bigger, may be halted for now, Jensen knows something to be true that is denied repeatedly by the haters: Nvidia's chips hold up. They may hold their value for 10 years. That's a godsend for Intrator because Jensen is lending against them for about five years. When that period is up, he takes them back. If their prices hold up and they have — he can sell them; he can lease them again. There is no doubt that they hold up. There are benchmarks of truth. There will be a two-way market in these things soon, like mortgage-backed and auto loan-backed bonds. The loan market knows that now. Intrator has borrowed against them already at much lower rates than the public markets offer. It is rare to say the public markets are wrong or manipulated or both. But I think that's the case with CoreWeave, as it is the linchpin to the thesis that the buildout isn't at its end. You either believe it, or you don't. If you believe it, you are tempted to buy Monday morning as the group is ridiculously oversold. If you think it is all one big sham, then short away or sell. Bottom line I don't think it's a sham. Let me repeat that: I don't think it's a sham. CoreWeave is not Lucent. Nvidia is not Nortel, the almighty vendor of that era. We can step back and say this is just some skirmish in the giant war for or against the data center. The big battle will come with the midterm election if it turns out that data centers really fall behind in the election to the point that even Texas and Pennsylvania don't want them. Last week made it look like a one-two punch of the market's tapped out and the election is going against the data center. I think that neither is the case. I think the market is taking a well-deserved breather, and there will always be localities that welcome data centers. I think that the ultimate build-out will come to $10 trillion to $12 trillion, like Morgan Stanley CEO Ted Pick threw out in CNBC Leslie Picker's excellent interview . Moreover, I think that both Anthropic and OpenAI will come public, and anyone who needs to get paid will get paid. And, I think that the states that ban the data centers will rue the day they turned down all the money that is now going to flow to the remaining states that haven't voted or voted in favor. The deals the hyperscalers will offer are insane. Full circle: My view has many believers. Too many. Because obviously many of them borrowed money to make, not that investment, but that bet. They may not even understand the sophisticated chain that gets us to where we are now. They are, alas, the problem. Broken hedge funds, not broken paradigms. If I am right, then the morass clears up pretty quickly; the bigger hedge funds that had their positions sold out underneath them will be revealed. The price of CoreWeave's debt goes down, as it was always juiced by credit default swap buying ; and even Oracle's stock goes up. Don't get complacent. The bears need to make their year, too. But be aware of how long Nvidia's chips last. Understand that there will soon be a public market trading compute because BlackRock , the largest repository of assets, has willed it to be. Recognize that generative artificial intelligence, no matter what the threat to mankind, will triumph. And accept that history will be littered with people who thought about the fourth industrial revolution too aggressively or were thinly capitalized or not competitive — like the overused rail analogy from the 1870s — and didn't make it to the promised land. (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. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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