AI disruption fears rock software stocks again. How Jim Cramer is navigating the sell-off

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VIDEO5:0705:07

We saw lots of good companies that make software-as-a-service wilt after strong earnings, says Jim Cramer

Mad Money with Jim Cramer

CNBC’s Jim Cramer said Thursday that investors need to tread carefully in the wake of another brutal day of selling in software stocks.

The market’s fear around artificial intelligence-driven disruption to their business models is driving indiscriminate selling, Cramer said, making it difficult to know where valuations ultimately settle. While the cohort has been under pressure for months, the latest leg lower Tuesday is being chalked up to Anthropic rolling out new legal tools for its Cowork product.

Wall Street has decided that “everything software must be thrown away, anything remotely connected to software is suspect, including companies that just collect data,” Cramer said Tuesday on “Mad Money.” “But any client — a bank, a consumer-packaged goods company, an industrial company — is golden, at least for now.”

On Tuesday, shares of ServiceNow tumbled nearly 7%, pushing its year-to-date losses to 28%. Salesforce also dropped about 7%, bringing its 2026 decline to almost 26%. Intuit, the TurboTax parent, fell nearly 11% and is now down more than 34% year to date. Those moves contributed to the tech-heavy Nasdaq Composite sliding 1.4% on Tuesday.

By contrast, Cramer noted that winning stocks in Tuesday’s session included the likes of Procter & Gamble, FedEx and Union Pacific.

Software stocks haven’t seen their reported profits collapse yet, Cramer said. “Wall Street’s paying less and less for their earnings. The earnings aren’t going away, they’re just paying less for them, because that’s what you do when you’re worried about the future,” he said.

That creates a challenge for investors looking to step in. “The problem with a shrinking price to earnings multiple is that you don’t know how low it can go,” Cramer said.

While some investors have rotated into companies that spend heavily on software like banks, consumers and industrials, Cramer noted many of those stocks have already moved higher, limiting the opportunity.

As a result, Cramer said selectivity is essential in this market. He noted that for his CNBC Investing Club, he bought shares of CrowdStrike because cybersecurity providers were being lumped in with the broader software category but that kind of business will be harder to recreate with AI tools.

The bottom line, Cramer said, is that “there are winners, the users and losers, the providers – logic says the pain will not spread beyond this cohort. But then again, the market’s not always logical.”

Disclosure: Cramer’s Charitable Trust, the portfolio used by the CNBC Investing Club, owns shares of CRWD and CRM.

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Investors are paying less and less for software earnings these days, says Jim Cramer

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