Wall Street is too fixated on the high valuations of tech and speculative stocks, Cramer says

CNBC's Jim Cramer suggested Wall Street is too fixated the on large valuations of certain tech and speculative stocks, chalking up Tuesday's market-wide decline in part to Palantir's nearly 8% loss despite strong earnings results.

"The larger issue is that we're at the moment where money managers, when asked if the market's too expensive, immediately think of the high-flying speculative stocks or those in the high-growth artificial intelligence column, and so they warn you away from the entire asset class," he said. "These guys don't think of the other 334 stocks in the S&P 500 that sell for less than 23 times earnings — those aren't outrageous."

Declines in Palantir and other artificial intelligence companies helped bring stocks down on Tuesday, with the S&P 500 losing 1.17%, the Dow Jones Industrial Average shedding 0.53% and the tech-heavy Nasdaq Composite sinking 2.04%. Palantir managed to beat the estimates and offer solid guidance, citing growth in the artificial intelligence business. But investors worried broadly about the huge valuations of tech giants that have been leading the market to new heights.

Investors who saw Palantir as their "north star" were alarmed by its big pullback after a great quarter, according to Cramer. The fears triggered "a raft of selling" as these investors questioned the market as a whole, he continued.

Palantir can be a tough stock to classify, Cramer suggested, saying it straddles two different market segments — one centered around tech and artificial intelligence, and another focused on speculative stocks. He noted that the data-driven software company is very lucrative and fast growing, and it "defies easy description." He listed off a number of its business arms — including its work as a defense contractor and as a consultant for companies looking to modernize and improve profitability.

To Cramer, it's reasonable to consider that there's nothing wrong with Palantir, and it just needs "to cool off in order to grow into its market capitalization."

"Sure, there are indeed some stocks that are visibly overvalued, and when you pull them apart, many of these valuations can be justified, some can't," he said. "I think the Magnificent Seven can be justified on the pace of the growth that's ahead of them. Same, ultimately, with Palantir."