CNBC’s Jim Cramer said semiconductor stocks have become the market’s new center of gravity as they power the artificial intelligence boom.
“It’s a new era,” the “Mad Money” host said. “Right now, the semi-finals are in the driver’s seat. The software is taking a backseat.”
The comments came after Nvidia Quarterly profits announced Wednesday night beat Wall Street expectations. The semiconductor giant posted adjusted earnings of $1.87 per share and sales of $81.62 billion.
Before the generative AI era, technology investments were dominated by software, as companies relied on subscription-based products to manage everything from sales and HR to forecasting and IT. These software vendors generate recurring revenue and high profits, making software-as-a-service (SaaS) one of the most valued business models on Wall Street.
But Kramer said artificial intelligence has reshaped that hierarchy. This year, iShares Semiconductor ETF rose by about 72%, iShares Enhanced Technology Software Sector ETF It fell about 12%.
“Software faces new competition from much cheaper products that you can develop yourself using AI, and is growing slower than the physical aspects of technology, such as semiconductors, hardware, and the tools that will enable the artificial intelligence revolution,” he said.
Cramer said some veteran investors may have a hard time grasping the fact that Nvidia is the world’s most valuable company because the semiconductor industry has historically not enjoyed the same revenue stability or unit economics as SaaS. But Kramer argues that it clings to an outdated worldview.
Companies that provide the computing infrastructure behind AI (such as Nvidia) AMD, arm, inteland broadcom — is a big driver of this change, Kramer said. These chips, combined with AI models like Anthropic and OpenAI, are challenging traditional enterprise software vendors by allowing companies to automate tasks that once required expensive software licenses and large workforces.
“When you combine Nvidia hardware with Anthropic or OpenAI, you can easily create applications that rival expensive enterprise software,” Cramer said.
That doesn’t mean traditional software companies will disappear, he added. Companies will continue to use platforms from companies such as: sales force and adobeBut the rise of artificial intelligence is causing customers to reconsider how much they’re willing to spend, eroding the pricing power software vendors once enjoyed.
“They instilled fear into the very fabric of the company,” Kramer said.
That’s why Kramer urged investors to stop thinking about technology through the old software-first lens.
“The world has changed,” he said. “We will not go back to what we were before, not now and never will.”
Disclosure: Cramer’s Charitable Trust, a portfolio used by CNBC Investment Club, owns stock in Arm, Broadcom, Nvidia, and Salesforce.
