CNBC’s Jim Cramer said Wednesday that he believes many software companies will survive the threat of AI disruption, dismissing even the most doomsaying predictions.
Still, he cautioned that investors shouldn’t hold their breath for a return to the glory days, when they paid hefty premiums for stocks.
“Software companies are survivors. They can merge. They can adapt. They can do whatever they really need to do to stay in business,” Kramer said on Wednesday’s “Mad Money” show, but added: “They’re pricing in perfection, and they certainly seem to have a rugby scrum vibe, but we’re not paying for scrums.”
He noted that a blog post published by Citrini Research earlier this week was the latest trigger for AI-related declines in software and, to a lesser extent, other sectors. In this post, we considered what the United States might look like in 2028 if AI hollows out white-collar jobs, disrupts the seat-by-seat software model, and triggers a domino effect across private equity and the broader economy. Despite being clearly labeled as a hypothesis, not a prediction, Citrini’s post shocked Wall Street.
Kramer said the market reaction has been exaggerated.
“Yes, Wall Street can overreact more than anyone else,” he said, arguing that the stock market has taken legitimate concerns (that AI could squeeze profit margins and slow the growth of enterprise software companies) and turned them into a extinction event.
However, he has predicted real results, and investors cannot completely ignore them. Software companies that were once “perfectly priced” are likely to trade at lower price-to-earnings ratios as AI compresses pricing power and revenue growth, he said. However, just because the multiplier is low does not mean it will collapse. Cramer believes his company can implement AI to reduce costs and adapt to the competitive environment.
However, he said parts of the market that benefited from AI-driven productivity, such as banks, travel agencies and some retailers, were unfairly penalized in the latest selloff.
At the heart of that productivity is Nvidia, whose chips enable faster, cheaper computing. This dynamic points to a rebuilding, not a destruction, of the economy, Cramer said. Nvidia’s fourth-quarter profit, announced Wednesday night, beat expectations, as did its outlook for the ongoing fiscal first quarter.
Cramer said the strong performance shows “how off the charts the demand is” for AI and suggests it is a big win for the economy. “While we struggle with how AI can be a force for wealth destruction, it is also hard to deny that it is an incredible means of wealth creation,” he concluded.
