Jim Cramer's simple framework for identifying winners in a market fearful of AI disruption

CNBC's Jim Cramer on Tuesday outlined a simple framework to make sense of the current market, as the threat of artificial intelligence disruption looms over industries from software to commercial real estate.

"We want companies that make things and do stuff that we can understand. We want to avoid stuff we can't or don't comprehend, because if you can't get your head around it, then it's probably the kind of stock that Anthropic ... can wreck with a simple press release," Cramer said on "Mad Money," referencing the AI startup behind the Claude chatbot. Anthropic has announced a tear of new industry-specific AI tools in recent weeks, often accompanied by sell-offs in stocks in those domains.

"Suddenly, once unassailable companies with great moats seem like they might be worth nothing — yes, nothing," Cramer said. "Maybe these software stocks can have periodic bounces, but if you don't know what they do, if you don't know what they make, if you can't explain the business to someone else, you can't own it."

Cramer's comments on Tuesday came after a recovery day for Wall Street in which all three major U.S. indexes finished the day higher. With increased attention on the concept of "HALO" stocks — heavy assets, low obsolesce — Cramer said he was trying to put an even finer point on what this fragile market is looking for in minting winners.

He said another important consideration is whether the company's products are in demand, and it's especially helpful when their products are facing shortages. That's the case right now with companies that make memory chips and storage devices used in AI computing, such as Sandisk and Micron.

"How about Caterpillar? We like their stuff," Cramer added, while also mentioning fellow gas turbine maker GE Vernova, which is owned by his Charitable Trust, the portfolio used by the CNBC Investing Club.

"How about things that move other things? FedEx is good," Cramer said. He also ticked off a list of value-oriented retailers like Walmart, Dollar General, Costco, Dollar Tree and TJX, which reports tomorrow. "All those companies make things and sell them cheaper than the other guys."

Cramer mentioned the likes of Johnson & Johnson, Colgate, Procter & Gamble and Hershey. "Don't think HALO. Think understandable things," he said.

Some areas of the market where Cramer said he would be cautious include finance, anything dependent on beef prices retreating from record levels, and steelmakers, which could be hurt by lower tariffs.

Disclosure: Cramer's Charitable Trust, the portfolio used by the CNBC Investing Club, owns shares of TJX, COST and PG.

Sign up now for the CNBC Investing Club to follow Jim Cramer's every move in the market.

Disclaimer