We recently compiled a list of the Jim Cramer’s Top 10 Stock Picks You Can’t Ignore. In this article, we are going to take a look at where ARM Holdings plc (NASDAQ:ARM) stands against Jim Cramer’s top stock picks.

In a recent episode of Mad Money, Jim Cramer discussed the current divide between tech stocks and other sectors, highlighting their tendency to move in opposite directions. For example, on a day when the Dow Jones Industrial Average increased by 228 points and the S&P 500 went up by 0.13%, the NASDAQ, which is heavily influenced by tech stocks, dropped by 0.52%. Cramer thinks it’s because there isn’t enough new money flowing into the market.

“How did we get to this bizarre dichotomy between tech stocks and pretty much everything else, where the two groups now almost always seem to move in opposite directions? Take today: the Dow Jones Industrial Average gained 228 points, the S&P advanced 0.13%, but the NASDAQ—with all that tech in it—dropped a bomb. Yes, it fell 0.52%. How could there be such a schism?”

As a result, large institutions need to move their investments between sectors since they can’t invest in both at once. This shift is due to market mechanics rather than fundamental news. When stocks are already doing well, it’s difficult to attract new investment, especially when safer options provide attractive returns. Therefore, either tech stocks or other sectors will perform well, but not both simultaneously.

“It’s because there’s not enough money coming in from the sidelines, so these big institutions have to swap out of one group if they want to buy stock in another. Yet this action has nothing to do with fundamentals; it’s not about the news, it’s about pure market mechanics. When stocks are already red hot, it’s hard to attract new capital from the sidelines, especially when you can get a cozy 4% return for doing nothing. So, either tech wins or everything else wins, but there’s not enough cash for both of them to win at the same time.”

Market Shake-Up: Clear Winners and Losers Amid Fed’s Critical Rate Decision

Cramer notes that this situation results in distinct winners and losers, rather than a range of performance on a positive day. This is occurring amid uncertainty about whether the Federal Reserve will reduce interest rates by 25 or 50 basis points in their upcoming meeting. Cramer also notes that, despite his usual reluctance to speculate on the Fed’s decisions, recent market movements have been swayed by expectations of rate cuts. For example, when The Wall Street Journal indicated the Fed might choose a 50 basis point reduction, there was a notable shift towards cyclical stocks, particularly those related to housing. This shift, along with other positive news, contributed to the market’s best week of the year.

“What happens? We get winners and losers—not big winners and smaller winners, as you would normally expect on an up day like today. This is all against the backdrop of the big question: will the Fed cut rates by 25 basis points or 50 when it meets on Wednesday?

Now, you know me, I try to refrain from this parlor game of guessing the Fed’s next move based on the strength of the economy. Last week, when *The Wall Street Journal* indicated the Fed may actually be leaning toward 50 basis points, we saw this great migration into cyclicals, especially anything related to housing. Of course, last week, there was just enough good news to propel the entire market, which is why it was the best week of the year.

This leads me to this newfound great divide between tech and non-tech, because that’s how this market seems to be trading. It’s a big reason why I’m out here in Silicon Valley this week. Today, we saw a market that doesn’t believe in AI, or tech in general for that matter. It’s a market that believes a 50-basis-point rate cut will shift money from semiconductors to housing and anything housing-related, and people want to get ahead of that.”

Jim Cramer’s Definition of ABT: “Anything But Tech”

Jim Cramer noted that Monday’s market saw a wide range of winners. Healthcare stocks, retailers, and consumer packaged goods companies all did well, and even oil stocks, which have been lagging, are rebounding. This is unusual because typically when cyclical stocks rise, sectors like healthcare and consumer products would drop. Cramer explains this trend as part of a broader market shift he calls “ABT,” or “anything but tech.” Essentially, today’s market is focusing on sectors outside of technology.

“Today, the winners broadened out. The healthcare stocks got jiggy, retailers worked, and consumer packaged goods companies outperformed. Even the much-maligned oils are rallying. It’s crazy—healthcare and consumer products should be selling off when cyclicals rally, but that’s not what’s happening because it’s *ABT*. No, I’m not talking about the symbol for Abbott Labs. ABT means “anything but tech,” and that’s what today’s market was about.

The implications are pretty stark, folks. Market commentators call this a rotation, but that understates what’s really happening here because the move is so vicious and devoid of realism. The market’s action is dictating what we do. For example, we know that the principal beneficiaries of rate cuts are the housing stocks, which rallied again today. This is the second day these stocks jumped as rates continue to plummet. But today, day two, was zero-sum.”

Tech stocks also experienced notable gains because of key events. For example, Larry Ellison from Oracle reported strong earnings and emphasized the need for many additional data centers.

Our Methodology

This article summarizes Jim Cramer’s latest Mad Money episode, where he discussed various stocks. We have selected the ten most notable companies he mentioned and ranked them based on their ownership levels by hedge funds, from the least owned to the most owned.

At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

ARM Holdings plc (NASDAQ:ARM)

Number of Hedge Fund Investors: 38

Last Monday, Jim Cramer recommended buying stocks of Micron Technology, Inc. (NASDAQ:MU), Advanced Micro Devices, Inc. (NASDAQ:AMD), and ARM Holdings plc (NASDAQ:ARM), noting that the semiconductor sector had experienced an extreme sell-off, making these stocks likely candidates for a rebound. Since then, ARM Holdings plc (NASDAQ:ARM), a major player in semiconductor design, saw a notable 10% increase, despite a recent 6% drop due to reports of weak orders for new iPhones, which use ARM’s chip architecture.

This dip does not concern Cramer much, especially considering ARM Holdings plc (NASDAQ:ARM)’s stock has surged nearly 175% since its public debut about a year ago. The key question now is whether ARM Holdings plc (NASDAQ:ARM) can continue this upward momentum.

“Last Monday, I told you it was time to buy the stocks of Micron, AMD, and ARM Holdings because the semiconductor sell-off had gotten too extreme, and these three seemed ripe for a bounce. Since then, ARM Holdings, the semiconductor design colossus, has rallied about 10%, even with today’s brutal 6% decline on reports of weak orders for new iPhones, which contain their chip architecture. But I don’t mind the pullback, given that ARM’s stock is up almost 175% since it went public roughly a year ago. The question is, can it keep running?”

ARM Holdings plc (NASDAQ:ARM) is a strong investment opportunity due to its leading position in the semiconductor industry, especially in the growing edge AI and mobile technology markets. Recently named Morgan Stanley’s top large-cap pick, ARM Holdings plc (NASDAQ:ARM) is set for significant growth, particularly with its energy-efficient AI processing technology. Its v9 architecture is widely adopted, including in devices like the iPhone 16, which uses ARM Holdings plc (NASDAQ:ARM) chips for AI functions. This widespread use is expected to boost ARM Holdings plc (NASDAQ:ARM)’s royalties and revenue in the coming years.

In its Q1 FY25 earnings report, ARM Holdings plc (NASDAQ:ARM) showed a 39% increase in revenue from the previous year, driven by strong performance in mobile and automotive segments. Morgan Stanley forecasts a 35% annual growth rate for ARM Holdings plc (NASDAQ:ARM)’s mobile business from FY24 to FY27, due to rising demand for AI chips and custom silicon.

With a robust licensing and royalty model, including partnerships with major companies like Apple Inc (NASDAQ:AAPL), ARM Holdings plc (NASDAQ:ARM) is well-positioned for long-term success. Despite some short-term economic uncertainties, its advancements in AI and custom chip solutions support a positive outlook for the future.

Overall ARMH ranks 10th on our list of Jim Cramer’s top stock picks. While we acknowledge the potential of ARM as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ARM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.