Jim Cramer says Wall Street is punishing the wrong tech stocks

On Thursday, CNBC's Jim Cramer expressed his belief that Wall Street is mistakenly punishing certain technology stocks based on the disappointing earnings of individual companies, rather than evaluating the broader industry landscape. The stock market experienced a downturn, ending a three-day rally, as investors processed a new wave of corporate earnings reports. The Dow Jones Industrial Average and the S&P 500 both fell by 0.4%, while the Nasdaq Composite, heavily weighted towards technology, dropped by 1.4%. Cramer suggested that investors are too hasty in selling stocks simply because they are associated with underperforming peers, which may overlook significant distinctions between businesses and present potential buying opportunities.

"My motto: do the homework, know what the companies really do," Cramer stated during his "Mad Money" segment. He emphasized that understanding individual companies is essential for capitalizing on short-term market reactions that are often driven by guilt-by-association. Cramer highlighted cybersecurity stocks as a particularly notable example of this trend. Fortinet, which reported disappointing quarterly results on Wednesday, negatively impacted the shares of competitors Palo Alto Networks and CrowdStrike. However, he argued that both Palo Alto and CrowdStrike deliver more extensive cybersecurity solutions than Fortinet, which is primarily hardware-focused. Cramer pointed out that Fortinet has been losing market share to its rivals, indicating that its struggles reflect internal issues rather than a decline in overall market demand.

"Their stocks should be bought, not sold, because Fortinet's weakness is not a tell about a slowdown in cybersecurity; it's just a sign that Fortinet itself isn't doing well," Cramer remarked, advocating for investment in the stronger competitors.

He observed a similar trend within the enterprise software sector, noting that a slight earnings miss from ServiceNow on Wednesday adversely affected other software-as-a-service companies, including Workday and Salesforce. Workday focuses on human resources and financial software, while Salesforce specializes in customer relationship management and its Agentforce platform. Cramer, who maintains close relationships with both Workday and Salesforce, asserted that their stock declines were more attributable to ServiceNow's performance than to any issues within the companies themselves.

"I can tell you that their declines today had more to do with weakness emanating from ServiceNow than anything having to do with the companies themselves," he said, further illustrating the disconnect in market reactions.

This pattern of misguided sell-offs was also evident in other technology firms. Cramer noted that disappointing earnings from Alphabet led to a decline in Microsoft's stock, despite the latter's strong quarterly performance. Similarly, a conservative outlook from Samsung exerted downward pressure on Micron's shares, even though Micron's high bandwidth memory portfolio is superior to Samsung's. "Another buy," Cramer added, reinforcing his view on the potential value of Micron's stock in light of its fundamentals.

"Some of these guilty verdicts are downright absurd," he concluded, emphasizing the irrationality of the market's reactions to individual earnings reports.

Cramer's Charitable Trust, which is managed by CNBC's Investing Club, holds shares in Palo Alto Networks, CrowdStrike, Salesforce, Alphabet, Microsoft, and Micron. Investors interested in following Cramer's market insights can subscribe to the CNBC Investing Club for real-time updates on his investment decisions.

For inquiries or to engage with Cramer, viewers can call 1-800-743-CNBC or reach out through various social media platforms associated with "Mad Money." Additionally, suggestions for the "Mad Money" website can be sent to madcap@cnbc.com.