Chips are the new king: Why Jim Cramer says software's reign in tech investing is over

CNBC's Jim Cramer is calling it: the old software-first investing playbook is dead. In a recent episode of Mad Money, he argued that semiconductor stocks have become the market's new center of gravity, powered by the artificial intelligence boom. "Semis are now in charge. Software is taking a back seat," Cramer said, following Nvidia's quarterly earnings that crushed expectations—$1.87 per share on $81.62 billion in revenue.

For years, enterprise SaaS companies ruled Wall Street. Subscription-based platforms for sales, HR, and IT generated predictable recurring revenue and fat margins. But AI has flipped that hierarchy. So far this year, the iShares Semiconductor ETF is up roughly 72%, while its software-focused counterpart has dropped about 12%. Cramer noted that businesses can now build their own AI-powered applications using Nvidia hardware and models from Anthropic or OpenAI—tools that rival expensive enterprise software at a fraction of the cost.

"Software's facing new competition from the much cheaper products you can develop yourself from AI," he said, adding that hardware—chips, servers, infrastructure—is now growing faster than the subscription model ever did. Legacy vendors like Salesforce and Adobe aren't going away, but their pricing power is eroding as customers rethink spending.

Cramer acknowledged that longtime investors may struggle with Nvidia being the world's most valuable company, given that chipmaking historically lacked the revenue stability of SaaS. But clinging to that old worldview, he argued, is a mistake. "The world has changed. We are not going back to the way things were. Not now. Not ever."