As stated by Jim Cramer of CNBC, the turmoil in artificial intelligence stocks this week serves as a painful reminder to investors: do not put all your funds into the market's hottest trades.

After AI infrastructure stocks led the market gains for several months, Cramer stated that investors who still held positions in other sectors have finally seen the benefits of diversification. On Thursday, Kimberly-Clark rose by 4.7%, Waste Management by 3.9%, and Eli Lilly by 3.6%. Calculated over this week, all three stocks have risen by at least 6%. Meanwhile, iShares Sem token offerings nductor ETF ( SOXX ) have experienced their eighth consecutive trading day of decline, setting a new record for the longest streak of losses in over a decade.

The host of “Mad Money” said, “We haven’t talked enough about diversification in investing. Part of the reason is that when one group of assets consistently outperforms the rest of the market, it’s not so much fun. But when that group falls back to its original level over the past few weeks, only diversification can save your investment portfolio.”

Cramer mentioned Charitable Trust of CNBC Investing Club as an example. On September 1st, the portfolio sold the beneficiary stock Corning; a day later, it bought back Huggies's parent company Kimberly-Clark to reduce its exposure to data center transactions. Initially, this move seemed premature as Corning continued to rise while Kimberly-Clark fell, but recent sector rotations have begun to prove that this decision was correct.

Cramer said, " Corning is falling back, while Kimberly-Clark is taking off." Since the club sold its shares, the price of Corning has dropped by nearly 5%. The club has increased its holdings of Kimberly-Clark several times to reduce holding costs, and currently, the book loss is less than 1%. Since the low point on October 1st, the stock has risen by more than 10%.

Cramer acknowledges that it is still unclear how long the rotation out of the AI sector will last. However, he warns that investors who concentrate too heavily on a particular sector may suffer losses that could force them to completely withdraw from the market.

He said, "If you become too focused, you could be knocked out, and you might even end up giving up on the entire asset class."

Cramer's Charitable Trust holds stocks of INTC, KMB, LLY, and NVDA.