Monday - Friday, 6:00 - 7:00 PM ET
- Software stocks came roaring back in the third quarter as fears that AI would disrupt traditional business models faded, with Salesforce, Microsoft, Workday and Veeva among the biggest winners.
- CNBC's Jim Cramer sees more upside for software leaders including Salesforce and Microsoft, while warning that higher interest rates are the biggest risk heading into the new quarter.
In this article
Follow your favorite stocksCREATE FREE ACCOUNTwatch nowVIDEO2:4702:47Applovin was once a favorite of the momentum crowd, says Jim CramerMad Money with Jim CramerCNBC's Jim Cramer said Thursday that enterprise software's comeback was the defining stock market story of the third quarter.
The major averages posted modest gains in the third quarter, which ended Wednesday, but there were much bigger moves beneath the surface as market leadership shifted. Software stocks roared back from their artificial intelligence-driven sell off, while chip names cooled after a massive first-half run. The iShares Expanded Tech-Software Sector ETF (IGV) rose 17% during the quarter, compared with an 11% decline for the iShares Semiconductor ETF (SOXX).
"Ultimately, I think we'll remember the third quarter as the moment when software bounced back and some amazing data center plays succumbed to profit taking," the "Mad Money" host said.
Salesforce rallied 46% during the quarter as investors grew more confident that AI could be a growth driver rather than a threat to its business. The company unveiled Claudeforce, which includes a plugin that lets customers use Anthropic's Claude to access data stored in Salesforce and perform tasks such as drafting emails and updating records. Salesforce also delivered a strong quarter and took advantage of its lower share price to buy back stock. Cramer said the shares can still go higher.
He's similarly bullish on Microsoft, which gained 37% during the quarter.
"Microsoft's rally is just beginning," Cramer said, pointing to strong demand for Copilot, accelerating growth at Azure and signs that its data center investments are beginning to generate returns.
Workday and Veeva also rallied 55% and 60%, respectively, as fears of AI disruption eased. Cybersecurity remained another bright spot, with CrowdStrike gaining 39% as increasingly powerful AI reinforced the importance of protecting companies from new threats.
Meanwhile, some previous data center winners cooled off. Corning fell nearly 40% after a massive run, but Cramer characterized the decline as profit-taking and said he would "happily buy this one back if it dips again." Caterpillar similarly dropped 24%, which he said could present an opportunity, as its engines are becoming a growing source of data center power.
Heading into the new quarter, however, Cramer's biggest concern is whether the Federal Reserve will continue raising interest rates. The Fed raised its benchmark rate by a quarter percentage point in September, putting pressure on rate-sensitive stocks such as Home Depot.
"My big fear right now is the impact of higher interest rates on the stock market," Cramer said, adding that the upcoming earnings season should provide a clearer picture of how higher borrowing costs are affecting companies.
Cramer's Charitable Trust, the portfolio run by CNBC's Investing Club, owns shares of CRM, MSFT, and CRWD.
watch nowVIDEO11:1811:18You have to look at what went right and wrong in a quarter, says Jim CramerMad Money with Jim CramerClick here to read Jim Cramer's Guide to Investing at no cost to help you build long-term wealth and invest smarter
Questions for Cramer?
Call Cramer: 1-800-743-CNBC
Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram
Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com
Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.
