CNBC’s Jim Cramer said Tuesday that the recent rally in struggling software stocks may have more to do with short covering than any significant improvement in fundamentals. “This is what I call a squeeze,” Kramer said on “Squawk on the Street.” “It’s a real hedge fund squeeze.” Software stocks outperformed Tuesday as investors moved away from semiconductor and artificial intelligence hardware stocks, which have been a big driver of this year’s market rally. Beaten software stock Salesforce rose slightly, extending its winning streak to four sessions and more than 9%. Ahead of Wednesday evening’s earnings report, Nvidia is headed for a third straight session of losses of about 6%. Cramer’s Charitable Trust, a portfolio used by CNBC Investing Club, owns Salesforce and Nvidia. The “Mad Money” host said software’s rise reflects a sharp reversal in positioning rather than improving demand trends. Software stocks have lagged for much of this year as hedge funds increasingly bet on the sector. They were concerned that advances in artificial intelligence, particularly Anthropic’s new model, would disrupt traditional software vendors and reduce their pricing power. That bearish stance may now be fueling the rebound, Cramer said. Cramer believes that if heavily shorted stocks rise, investors betting on them could be forced to buy them back. This is a dynamic known as a short squeeze, and it can accelerate profits even without significant changes in fundamentals. Kramer added that exchange-traded funds (ETFs) that group software stocks may also be amplifying this movement. “I haven’t heard of any unusual demand for this software,” Kramer said. “We hear again and again that the demand for the semifinals is insane,” Cramer said, citing Monday’s bullish comments from Bank of America, which pushed ServiceNow up nearly 9% in pre-market trading, and restored coverage of the stock to a buy rating and $130 price target, as an example of an overly aggressive reaction after months of weakness. ServiceNow fell on Tuesday, but rose last Friday and Thursday. “I do not support this increase,” he said. “This Software-as-a-Service gathering can take days, but this is days.” Instead, Kramer remains more bullish on semiconductor and hardware names related to building AI infrastructure. As he always says, NVIDIA is “owned, not traded.”
