Investors are paying less and less for software earnings these days, says Jim Cramer
Speakers
Jim Cramer
— Host, Mad Money
Summary
Jim Cramer discusses a sharp selloff in software stocks, arguing the market is de-rating enterprise software because AI threatens per-seat business models even though earnings estimates have not been cut. He sees opportunities in non-software tech dragged down by software ETFs, particularly CrowdStrike, and in companies that spend heavily on software, including Wells Fargo and industrial/consumer names. He also covers Broadcom and NVIDIA as environment winners, previews Chipotle and Merck, and warns that private equity stocks face a closed IPO window for software holdings.
- Software stocks sold off broadly, with IGV holdings like Microsoft, Salesforce, Adobe, and ServiceNow down sharply.
- Cramer says AI fears are compressing software P/E multiples rather than cutting earnings estimates.
- He bought CrowdStrike for the charitable trust, arguing cybersecurity was misclassified as enterprise software.
- Cramer favors companies that spend heavily on software, naming Procter & Gamble, FedEx, Union Pacific, Alcoa, and Wells Fargo.
- Broadcom is called a winner but not a buy yet until it pulls back and potentially buybacks.
- NVIDIA is described as a winner in the current environment.
- Previews include Chipotle's turnaround, Merck's earnings beat, and an NVIDIA partnership interview.
- Cramer warns private equity stocks are hurt by the closed IPO window for enterprise software assets.
Ideas
Sell enterprise software as AI de-rates multiples
AI is a threat to per-seat enterprise software because it can replace or reduce user bases; even high-quality software names like Salesforce, ServiceNow, and Adobe reported good numbers but their stocks still fell, showing Wall Street is de-rating the group. Cramer says there have been no big estimate cuts, but P/E multiples are shrinking, and many software stocks lack dividends or buybacks, leaving them with few defenses. He says software holders face a house of pain and concludes: sell, sell, sell.
Buy companies that spend heavily on software
Companies that pay for software are golden because they benefit as software vendors compete and can save fortunes on technology spending; Cramer says it is far better to own these public companies and names Procter & Gamble, FedEx, Union Pacific, and Alcoa as examples of software customers or heavy software spenders that are winning.
Buy CrowdStrike; mispriced cybersecurity exposure
Cramer bought CrowdStrike for the charitable trust because it is a cybersecurity company that does not belong in the enterprise software cohort; it was dragged down by an ETF, and AI is unlikely to replace the software needed to identify and stop bad actors.
Wells Fargo savings from AWS hire
Wells Fargo is a big software spender that can save money; it hired a technologist from Amazon Web Services to help bankers find hidden savings, which Cramer calls a winning move.
Avoid private equity on closed software IPOs
Private equity stocks were hammered because many own enterprise software companies that want to come public, but that IPO window is now closed and there are already too many opaque software assets; Cramer says investors do not want more of them.
Wait for Broadcom pullback and buyback
Broadcom is a great company and a winner in this environment, but it is not a good time to buy because it needs to come down; Cramer hopes CEO Hock Tan does a buyback and says patience will be rewarded.
NVIDIA is an environment winner
NVIDIA is a winner in the current environment, not a loser, as part of the hardware/AI side of the market that is triumphing over software; Cramer says he will be right over time.
Chipotle turnaround will pay off
Cramer says the turnaround efforts underway at Chipotle after its earnings are real and he thinks they will pay off.
Merck beat; selloff looks unwarranted
Merck delivered a top- and bottom-line beat and was a bright spot in a down market; Cramer criticizes the stock's instant negative reaction, implying the selloff was unwarranted and the setup is favorable.
