Software companies are more resilient to the looming threat of artificial intelligence than many doomsday predictions suggest, though investors may need to temper expectations for sky-high valuations.
That’s the view of CNBC’s Jim Cramer, who argued Wednesday that the software sector is inherently adaptable. “The software companies are survivors,” Cramer said on “Mad Money.” “They can merge. They can adapt. They can do whatever is really necessary to get it so they stay in business.”
However, he issued a note of caution: “They’re priced for perfection though and they do seem to have, let’s say, kind of a rugby-scrum feel about them — and we don’t pay up for scrum.”
Cramer’s comments come in the wake of a recent sell-off in software stocks, partly triggered by a hypothetical scenario from Citrini Research. The report, published earlier this week, explored the potential economic fallout in 2028 if AI were to significantly disrupt white-collar employment, undermine per-seat software licensing models, and create a ripple effect across private equity and the broader economy. While explicitly labeled a hypothetical, the report’s stark implications resonated across Wall Street, sparking a significant market reaction.
Cramer believes the market’s response was an overreaction. “Yes, Wall Street can overreact better than anyone,” he stated, suggesting that a legitimate concern about AI’s potential to pressure margins and slow growth for enterprise software firms was amplified into an “extinction event.”
He anticipates genuine consequences, nonetheless. Software companies that previously commanded premium valuations, often described as “priced to perfection,” may see their price-to-earnings multiples adjust downward as AI capabilities potentially compress pricing power and moderate revenue growth. However, Cramer posits that this recalibration doesn’t equate to an industry collapse. He believes these companies can strategically implement AI themselves to drive cost efficiencies and adapt to the evolving competitive landscape.
Furthermore, Cramer argued that the recent sell-off has disproportionately punished sectors poised to benefit from AI-driven productivity gains. He specifically pointed to financial institutions, travel companies, and select retailers as areas that stand to gain from AI advancements.
At the heart of this productivity revolution is NVIDIA, whose advanced chip technology is facilitating faster and more cost-effective computing power. Cramer sees this dynamic not as a harbinger of economic destruction, but rather as a catalyst for significant economic reshaping. NVIDIA’s robust fourth-quarter earnings, which surpassed expectations, along with strong forward guidance, underscore the insatiable demand for AI.
“That strong performance demonstrates how AI demand is off the charts,” Cramer observed, highlighting it as a significant positive for the economy. He concluded that despite widespread anxieties about AI leading to wealth destruction, the evidence increasingly points to its capacity as a powerful engine for wealth creation.
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