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.
Salesforce’s CEO Marc Benioff believes Agentic AI is a bold leap in the future of work.
Kevin Dietsch/Getty Images
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) .
Salesforce is often seen as the leader in leveraging AI to enhance customer relationship management, and BofA calls it a “leading front office Agentic AI play.”
Salesforce unveiled Agentforce 2.0 on Dec.17, which is its latest digital labor platform that can autonomously provide customer support without preprogrammed responses.
Agentforce’s clients include IBM (IBM) , Finnair, Accenture (ACN) , and Heathrow Airport. They are using the platform to augment their teams, streamline operations, and unlock new growth opportunities.
Salesforce reported fiscal third-quarter results on Dec. 3. Revenue surpassed Wall Street’s expectations, but earnings fell slightly short.
Adjusted earnings per share came in at $2.41, slightly missing Wall Street’s expectation of $2.44. Revenue grew 8% year-over-year to $9.44 billion, beating the $9.34 billion consensus estimate.
The company also raised the low end of its fiscal 2025 revenue guidance, now expecting $37.8 billion to $38 billion. This caused Salesforce’s stock price to surge 11% on the next trading day following the earnings.
Salesforce’s chief executive Marc Benioff highlighted the company’s momentum in artificial intelligence, particularly the Agentforce platform.
“This is a bold leap in the future of work, where AI agents let humans unite to transform all of our customer interactions,” Benioff said.
Salesforce positioned for $80 AI-driven upside, Wedbush said
Investment firm Wedbush is also positive about Salesforce stock into 2025. The firm is generally bullish in the broader software sector and has highlighted Salesforce as one of the biggest potential winners, along with Palantir (PLTR) .
“We believe CRM is a clear 2nd derivative beneficiary of the AI Revolution that could add ~$80 per share to the CRM story as this monetization story takes shape over the next 12 to 18 months,” Wedbush’s analyst Daniel Ives wrote in a December report.
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Bank of America has a buy rating and a price target of $440 on Salesforce stock, while Wedbush has a more bullish target of $425 and an outperform rating on the shares.
Salesforce closed at $320.8 on Jan. 15. The stock gained 27% in 2024.
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