Jim Cramer warns investors to avoid buying AI stocks on margin

CNBC host Jim Cramer warned investors against using borrowed money to invest in artificial intelligence stocks, saying growing volatility has made margin trading increasingly dangerous.

Speaking on Mad Money on Monday, Cramer said investors who bought AI-related data centre stocks using borrowed funds should consider exiting those positions immediately.

Cramer warns against margin trading

"If you're borrowing money to buy something related to the data center, then tomorrow morning, 9:30 a.m., sell it no matter what," Cramer said. "You won't regret it."

He added that investors already holding technology stocks on margin should reduce that exposure.

"If you're on margin, get off it," he said. "I no longer feel that you'll get out alive."

Margin trading allows investors to borrow money from a brokerage to increase the size of their investments. While it can amplify gains, it also increases losses and can trigger margin calls if share prices fall sharply.

AI trade faces growing pressure

Cramer said AI infrastructure and data centre stocks have surged over the past year but are now facing increased pressure as investors question whether spending on AI infrastructure can continue at the current pace.

Rather than concentrating investments in AI-related companies, he suggested looking at businesses with more diversified growth opportunities.

He highlighted building materials supplier CRH as an example, noting that while the company benefits from data centre construction, much of its business also comes from roads, bridges and office developments.

Long-term investors may weather volatility

Despite his warning about leveraged investing, Cramer said investors who own high-quality technology stocks outright may still be able to ride out market swings.

"Now, if you own terrific tech stocks, and you're not on margin, you could be fine, assuming you can handle some pain," he said.