Semiconductor stocks have taken over from software as the dominant force in technology investing, CNBC's Jim Cramer argued this week, and he says the shift is permanent.
"It's a new era," the Mad Money host said. "Semis are now in charge. Software is taking a back seat."
The comments followed Nvidia's latest quarterly earnings report, which topped Wall Street expectations. The chip giant posted adjusted earnings of $1.87 per share and revenue of $81.62 billion. Those numbers reinforced what Cramer described as a fundamental reshaping of how investors should think about the technology sector.
For years before the generative AI era, software dominated technology investing. Enterprises relied on subscription-based products to manage everything from sales and human resources to forecasting and IT. Software-as-a-service, known as SaaS, became one of Wall Street's most prized business models because it generated recurring revenue and high profit margins.
Cramer said artificial intelligence has disrupted that hierarchy. This year, the iShares Semiconductor ETF has climbed roughly 72%, while the iShares Expanded Tech-Software Sector ETF has fallen about 12%. Companies supplying the computing infrastructure behind AI, including Nvidia, AMD, Arm, Intel, and Broadcom, are driving the shift, Cramer said.
The argument is not simply that chips are selling well. Cramer's broader point is that AI is eroding the pricing power that software companies once took for granted. Businesses can now use AI tools to build applications that compete with expensive enterprise software, reducing their dependence on legacy vendors.
"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 companies like Salesforce and Adobe are going away. Cramer acknowledged that businesses will continue using those platforms. But he said artificial intelligence is making customers rethink how much they are willing to spend, and that is weakening the pricing power software vendors have long relied on.
"They've sown fear into the very fabric of the enterprise," Cramer said, referring to AI's effect on traditional software businesses.
Some veteran investors, Cramer said, may struggle to accept that Nvidia has become the most valuable company in the world. The semiconductor industry historically has not enjoyed the revenue stability and unit economics associated with SaaS, and some investors still view chips as cyclical and unpredictable. Cramer called that an outdated worldview.
"The world has changed," he said. "We are not going back to the way things were. Not now. Not ever."
Cramer's Charitable Trust, the portfolio used by the CNBC Investing Club, holds shares of Arm, Broadcom, Nvidia, and Salesforce.
