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The risks are undeniable.
After two years of impressive gains, the software sector could easily take a breather. But analysts aren’t betting on it.
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Bank of America analysts revealed that although the U.S. software market grew 59% in 2023 and 23% in 2024, development projections still run below historical averages.
"Revenue multiples and growth expectations remain below 5-year median and pre-Covid levels,” Bank of America said in its Jan. 14 report, pointing to the potential of three secular themes for 2025: Agentic AI, growing enterprise IT budgets, and sustained cloud migration.
Three growth themes explained
Agentic AI refers to AI systems that can learn, act, and make decisions autonomously, without constant human input. Bank of America sees it as a key differentiator for software companies.
“Agentic AI deployments could displace workers as early as 2H25 across industries, such as contact centers, software engineering and marketing,” the firm noted.
Related: Analyst picks Microsoft as best stock to play AI spending surge in 2025
The second key trend is accelerated enterprise IT spending, which is expected to gather pace through 2026.
Tech heavyweights like Meta, Microsoft, and Amazon are spending heavily on AI and will likely expand their investments in 2025.
“Demand continues to be higher than our available capacity,” Amy Hood, Microsoft’s finance chief, said during the company's earnings call last October.
Moreover, sustained cloud migration remains a key growth driver for the software sector as optimization headwinds ease, Bank of America said.
"Although we remain selective on small caps, we are bullish on the software sector for 2025, particularly in 2H, as accelerating secular tailwinds and easing cyclical headwinds converge," the firm added.
So, who could be the winners in this gold rush? Bank of America has its bets.
Bank of America names Salesforce as its top pick for 2025
Bank of America sees potential for positive returns in undervalued names within subsectors like CRM (customer relationship management) and Infrastructure, which the firm identifies as particularly well-positioned for growth in 2025.
Related: Analysts reveal AI stock picks for 2025, including Palantir
The firm has named Salesforce (CRM) one of its top buys this year, alongside HubSpot (HUBS) , Microsoft (MSFT) , ServiceNow (NOW) , Datadog (DDOG) , GitLab (GTLB) , Global-e Online (GLBE) , Five9 (FIVN) , Monday.com (MNDY) , and Asana (ASAN) .