Jim Cramer says the world of tech investing has changed and it’s not going back
CNBC’s Jim Cramer said semiconductor stocks are becoming the market’s new center of gravity because they are drivers of the AI boom.
“This is a new era,” the “Mad Money” host said. “The teams are now in charge. The software remains in the background.”
Comments came later Nvidia On Wednesday evening, it reported quarterly earnings that beat Wall Street expectations. The chip giant reported adjusted earnings of $1.87 per share and revenue of $81.62 billion.
Before the era of generative AI, software investments dominated technology investments as companies relied on subscription-based products to manage everything from sales and human resources to forecasting and IT. These software vendors have generated recurring revenue and high profits by making software as a service, or SaaS, one of Wall Street’s most valuable business models.
But Cramer said artificial intelligence is reshaping this hierarchy. This year, iShares Semiconductor ETF increased by approximately 72% iShares Extended Technology-Software Sector ETF fell about 12%.
“Software is facing new competition from much cheaper products that you can develop from AI, and … it is growing slower than the physical side of the technology: semiconductors, hardware, the tools that enable the AI revolution,” he said.
Cramer said some experienced investors may have a hard time accepting the fact that Nvidia is the most valuable company in the world because the semiconductor industry has historically not had the same revenue stability and unit economics as SaaS. But Cramer argued that this was clinging to an outdated worldview.
Companies that provide the computing infrastructure behind artificial intelligence (including Nvidia) AMD, Arm, IntelAnd broadcom “They are the biggest drivers of this change,” Cramer said. Paired with artificial intelligence models from companies like Anthropic and OpenAI, these chips are challenging traditional enterprise software vendors by allowing businesses to automate tasks that once required expensive software licenses and large workforces.
“You combine Nvidia hardware with Anthropic or OpenAI and you can easily build applications that are in the same class as expensive enterprise software,” Cramer said.
He added that this doesn’t mean legacy software companies have disappeared. Businesses will still use platforms from companies such as: sales force And AdobeBut AI is making customers rethink how much they want to spend, weakening the pricing power software vendors once had.
“They planted fear in the fabric of the business,” Cramer said.
That’s why Cramer urged investors to stop thinking about technology from a legacy software-first perspective.
“The world has changed,” he said. “We will not go back to the way things were. Not now. Not ever.”
Disclosure: The portfolio used by CNBC Investment Club holds shares of Cramer’s Charitable Trust, Arm, Broadcom, Nvidia and Salesforce.
