Cramer warns the narrative around AI is turning — and stocks could pay the price

CNBC's Jim Cramer said Tuesday that the artificial intelligence industry is losing the battle over public perception.

"The culture has turned against these people, these products, and the proponents have been caught flatfooted," the "Mad Money" host said. He added, "Wall Street's losing the battle of the narrative and all sorts of stocks might end up getting hurt."

The change in sentiment comes at a difficult time for the market. Treasury yields continue to climb to multiyear highs, while more than half of S&P 500 constituents are trading below their 200-day moving averages, meaning those stocks are in a downward trend, and 204 stocks in the index are at least 20% below their 52-week highs.

Given the already narrow market, Cramer worries changing attitudes toward AI could pressure the biggest growth driver on Wall Street and an important source of growth for the U.S. economy overall. Concerns about jobs, electricity costs and safety are increasingly competing with the industry's promises of economic growth and productivity gains. The stakes are raised by this being a midterm election year, with Democrats and Republicans vying for control of Congress.

"Eighteen months ago, people might've said these execs are putting tens of thousands of people to work building data centers," Cramer said. "Now we think how much have they raised electricity prices? How much water did they despoil? How many towns just got had?"

Warnings from leading AI developers about the risks of increasingly powerful models have only complicated the industry's message. Cramer pointed to a leaked version of Anthropic's IPO prospectus obtained by Reuters, which, the news outlet said, contained warnings that its AI models pose a "catastrophic or existential risk to humanity." He also referenced OpenAI's decision to hold back its next model, ChatGPT 6.1 Astra, over safety concerns.

"I'm not a doomer," Cramer said. "You know I'm constructive on AI, but the companies have to start telling better stories."

Cramer pointed to Meta as an example of how to change the narrative. He said he appreciates how the company has highlighted efforts to limit the impact of its data centers on local electricity costs and support the communities where it invests. He also praised Meta's new Muse AI agent, including a version designed to help small-business owners automate administrative work. Cramer's Charitable Trust, the portfolio run by CNBC's Investing Club, owns shares of Meta.

"Meta's Muse may be the best new tool for the scaling of small business that I've heard of in years," Cramer said.

Unless the industry does more to demonstrate AI's tangible benefits, Cramer worries deteriorating public sentiment could become another headwind for an already fragile market. "It didn't have to be this way," he said. "But that's the new narrative and it's going to be hard to break."

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