Jim Cramer Warns AI Is Making Even “Diversified” Portfolios More Concentrated
Cramer reclassified CAT as a data center stock after Power Generation revenue surged 29%, pushing shares up 90% over the past year.
Generac's data center backlog hit $1.6 billion while Micron surged 228% year to date, showing AI infrastructure demand hiding inside non-obvious tickers.
Cramer chose TJX and Wells Fargo to replace Caterpillar, arguing true diversification means separating end-market exposures, not just sector labels.
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On a recent episode of Mad Money, Jim Cramer took a call from Jeff in San Francisco, a 20-year viewer, who ran his top five holdings through the "Am I Diversified" game. Jeff's top 5 holdings were: Alphabet, NVIDIA, Apple, Caterpillar and Eli Lilly. Cramer saw that four of the top five positions carry meaningful AI or tech exposure, making a five-stock portfolio across four sectors less diversified than it appears.
On Caterpillar, "CAT, you know, I used to say that was earth moving. That's so wrong. And now turbines. It's really got a lot to do with the data center. We got to be careful. There's a data center stock, " Cramer said.
He then reached for an off-theme name to balance his portfolio: "I know TJX is going down. I know that the cheap retailers are good. I know Walmart's at $102, but I want to do TJX." He also flagged Wells Fargo as an alternative if the caller exited Caterpillar, and repeated his standing view on Apple and NVIDIA: own them, don't trade them.
Caterpillar ( NYSE:CAT ) reported its first-ever $20 billion sales quarter in Q2 2026, with revenue of $20.54 billion, up 23.98% year over year, and adjusted EPS of $8.17 versus a $6.20 estimate.
Segment revenue reached $8.24 billion, up 17%, with Power Generation up 29% to $3.10 billion, driven by data center demand for large reciprocating engines and turbines. On the call, management said power generation sales to users grew 72%, backlog expanded $9 billion sequentially to $72 billion, and some customers are placing orders as far out as 2030.
The market is already pricing the shift. CAT is up 43.5% year to date and 90.54% over the past year, and trades at a forward P/E of 32 with an average analyst price target of $979.22 vs a current share price of $791.08. That re-rating reflects an industrial carrying AI-linked demand rather than a pure late-cycle machinery play.
Cramer's Caterpillar point mirrors an argument JPMorgan Private Bank's Stephen Parker made: AI is broadening into industrials and utilities.
Consider Generac ( NYSE:GNRC ), whose data center backlog reached $1.6 billion, including roughly $1 billion of orders in the last 90 days and a first hyperscale deal worth nearly $700 million for 2027 delivery. GNRC is up 44.67% year to date.
Cisco Systems ( NASDAQ:CSCO ) took $4 billion of hyperscaler AI infrastructure orders in Q4 FY26 and $9.3 billion for the full year, and guided FY27 AI infrastructure revenue to $7.5 billion. CEO Chuck Robbins called it a "networking super cycle."
Micron Technology ( NASDAQ:MU ) reported fiscal Q3 revenue of $41.5 billion and non-GAAP EPS of $25.11, with HBM4 12-high ramping twice as fast as HBM3E. MU is up 227.94% year to date.
Having tagged Caterpillar, Cramer needed exposure that doesn't move with AI capex. TJX Companies ( NYSE:TJX ) posted Q2 FY27 adjusted EPS of $1.22 on comps up 4%, and raised full-year adjusted EPS guidance to $5.15 to $5.20. The stock is down 11.82% year to date, the kind of setup Cramer sees as an opportunity when management is still executing.
Wells Fargo ( NYSE:WFC ) reported Q2 2026 EPS of $2 with return on tangible common equity of 17.7%, and CEO Charlie Scharf described underwriting AI-related financing across chips, power, and data-center shell as distinct credit exposures.
Cramer's point is that Caterpillar's growing data center exposure can reinforce an existing AI bet rather than offset it. Adding a company with different demand drivers, such as TJX, could reduce that concentration without abandoning the portfolio's technology holdings.
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