GoKawiilCNBC's Jim Cramer said on Wednesday that software's sharp turnaround shows how quickly Wall Street can change its mind — and beaten-down AI infrastructure stocks could be next.
"This month, we've seen a remarkable resurgence in the once hated enterprise software stocks, and a complete evisceration of the data center plays," the "Mad Money" host said. "But the lower those stocks get, the more enticing they become, and the easier it is for a single great earnings report to turn the entire complex around."
Enterprise software stocks spent much of the first half of the year under pressure as investors feared AI models would disrupt their software-as-a-service business models. However, Cramer said sentiment began to shift following ServiceNow's latest earnings report on July 22. Since then, software companies like ServiceNow and Salesforce have climbed roughly 22% and 15%, respectively, even though both remain significantly down for the year. Cramer said the rally demonstrates how quickly investors can change their minds once a beaten-down sector gets cheap enough for good news to matter.
"We had been bashing the heck out of enterprise software not that long ago," he said. "But when a group stops going down, you have to take notice."
He argued the same dynamic could eventually play out across AI infrastructure stocks, many of which have tumbled after enormous gains earlier this year. A beaten-up data center stock like Vertiv, he said, may not be cheap by conventional metrics yet, but it could be soon given the stock has pulled back roughly 40% from its high on May 14.
"What you need to know is whatever the heck really drove the rallies in ServiceNow and Salesforce and Adobe can change — going right back to the data center stocks — provided that we have the basics in place," he said.