CNBC’s Jim Cramer said that semiconductor stocks have become the market’s new center of gravity because they are the drivers of the artificial intelligence boom.
“It’s a new era,” the “Mad Money” host said. “Semis are now in charge. Software is taking a back seat.”
The comments came after Nvidia reported quarterly earnings Wednesday evening that topped Wall Street expectations. The chip giant posted adjusted earnings of $1.87 per share and revenue of $81.62 billion.
Before the generative AI era, software dominated technology investing as enterprises relied on subscription-based products to manage everything from sales and human resources to forecasting and IT. Those software vendors generated recurring revenue and high profits, making software-as-a-service, or SaaS, one of Wall Street’s most prized business models.
However, Cramer said artificial intelligence has reshaped that hierarchy. This year, the iShares Semiconductor ETF has climbed roughly 72%, while the iShares Expanded Tech-Software Sector ETF has fallen about 12%.
“Software’s facing new competition from the much cheaper products you can develop yourself from AI, and…it’s growing more slowly than the physical side of tech: semiconductors, hardware, the tools that allow for the artificial intelligence revolution,” he said.
Cramer said some veteran investors may struggle to come to grips with the fact Nvidia is the most valuable company in the world because the semiconductor industry historically hasn’t enjoyed the same revenue stability and unit economics of SaaS. But that’s clinging to an outdated worldview, Cramer argued.
Companies supplying the computing infrastructure behind AI — including Nvidia, AMD, Arm, Intel, and Broadcom — are huge drivers of this shift, Cramer said. Paired with AI models from the likes of Anthropic and OpenAI, these chips are challenging traditional enterprise software vendors by enabling 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 create applications that are in the same league as pricey enterprise software,” Cramer said.
That does not mean legacy software companies are disappearing, he added. Businesses will still use platforms from companies like Salesforce and Adobe, but artificial intelligence is making customers rethink how much they are willing to spend and weakening the pricing power software vendors once enjoyed.
“They’ve sown fear into the very fabric of the enterprise,” Cramer said.
That’s why Cramer urged investors to stop thinking about technology through the old software-first lens.
“The world has changed,” he said. “We are not going back to the way things were. Not now. Not ever.”
Disclosure: Cramer’s Charitable Trust, the portfolio used by the CNBC Investing Club, owns shares of Arm, Broadcom, Nvidia, and Salesforce.
