Jim Cramer warns software stocks may be rallying for the wrong reason

CNBC's Jim Cramer said Tuesday that the recent rebound in beaten-down software stocks may be driven more by short covering than a meaningful improvement in fundamentals. "This is what I call a squeeze," Cramer said on " Squawk on the Street ." "A genuine hedge fund squeeze." Software names outperformed on Tuesday as investors rotated out of semiconductor and artificial intelligence hardware stocks that have powered much of the market rally this year. Beaten-up software stock Salesforce climbed modestly, extending its winning streak to four sessions and over 9%. Ahead of earnings Wednesday evening, Nvidia is headed for a three-session losing streak of roughly 6%. Cramer's Charitable Trust , the portfolio used by the CNBC Investing Club, owns Salesforce and Nvidia. The software rally reflects a sharp reversal in positioning rather than improving demand trends, the "Mad Money" host said. Software stocks have lagged for much of the year as hedge funds increasingly bet against the sector . They feared that advances in artificial intelligence — particularly new models from Anthropic — would disrupt traditional software vendors and weaken pricing power. That bearish positioning may now be helping fuel the rebound, according to Cramer. As heavily shorted stocks rise, Cramer thinks investors betting against them may be forced to buy shares back — a dynamic known as a short squeeze that can accelerate gains even without a major change in fundamentals. …