Investing.com — Tech stocks weakened at the start of the new year, but the U.S. software sector remains cheap and is set to enter a third major tech cycle as consumer and enterprise AI adoption accelerates, analysts at BofA said- e in a recent note.
“USA Software (ETR:) sector is not cheap after rising 59% in 2023 and 23% in 2024,” BofA said in a recent note, pointing to a number of tailwinds, including rising pay for Agentic AI, which is AI that can perform tasks taking the initiative without constant human supervision, which is likely to play a large role in the next phase of growth of software companies.
Five key US software trends for 2025
- Enterprise AI pilots move to production: Demand for AI solutions will increase significantly as companies move from pilot projects to full implementations, driving significant investment in software that supports business AI capabilities.
- Software companies provide quantitative commentary on AI adoption and monetization: Qualitative commentary on increased AI adoption by companies during 1H25 earnings is expected to evolve into quantitative indicators of revenue growth in the second half of the year before monetization becomes significant in 2026-27.
- AI software costs cannibalize low-priority IT projects: Companies are expected to prioritize investments in artificial intelligence over less critical IT initiatives.
- Agentic AI and SLM (NASDAQ: ) development is gaining momentum: Agentic AI and small language model solutions are expected to gain momentum amid increasing demand for automation to improve operational efficiency.
- DevSecOps productivity accelerates as low-code/no-code applications proliferate: The increasing availability of low-code and no-code platforms will empower more teams to manage IT development, security and operations functions to improve cross-departmental productivity.
Three secular themes for 2025
- Agentic AI offerings are becoming a key differentiator for software solutions: As competition intensifies, software providers that integrate Agentic AI capabilities can increasingly capture market share of the $12 trillion US services industry.
- Enterprise IT budgets are accelerating in 2025/2026. as small business IT spending remains limited through the first half of 2025.: Larger enterprises are expected to significantly increase their IT investments, while small business spending is likely to remain constrained due to macro headwinds.
- Sustained migration to the cloud drives acceleration in revenue growth as optimization headwinds diminish: the ongoing migration to cloud-based solutions will increase operational efficiency and cost savings, driving revenue growth for cloud service providers.
10 Best Software Companies to Own in 2025
The CRM and infrastructure subsectors are best positioned to follow positive trends and the secular backdrop, BofA said, noting its list of the 10 biggest buys for 2025 includes Salesforce Inc (NYSE:), HubSpot Inc (NYSE:), Microsoft Corporation (NASDAQ:), ServiceNow Inc (NYSE:), Datadog Inc (NASDAQ:), Gitlab Inc (NASDAQ:), Global-E Online Ltd (NASDAQ:), Five9 Inc (NASDAQ:), Monday .Com Ltd (NASDAQ:), Asana Inc (NYSE:).
