A growing chorus in Silicon Valley and on Wall Street believes enterprise software will join the AI party in 2025. Previously, the artificial intelligence boom had largely passed over the sector, but investors are becoming increasingly excited about the rise of so-called agentic AI. As a recent note from Bank of America explains, this doesn’t refer to regular-old chatbots, but rather powerful models that can operate autonomous digital agents capable of enhanced reasoning and decision-making.
BofA and others believe that can help unleash a sector that has lagged the broader market in recent times. The S&P North American Technology Software Index—made up of companies like Oracle, Microsoft, Salesforce, ServiceNow, Intuit, and Adobe—is up just over 20% in the past 12 months, which, while not awful, trails the benchmark S&P 500’s 25% gain. However, U.S. software stocks rallied 12% in the final quarter of 2024, according to BofA, as the Street became more bullish about agentic AI as a disruptive force.
“Over the next decade, these fully autonomous agent and robot fleets may ultimately alter verticals heavily reliant on human capital and spark a corporate efficiency revolution that transforms the global economy,” BofA analysts led by Alkesh Shah, head of the firm’s Americas software research, wrote last week.
Though the analysts acknowledged the sector is not exactly cheap, they point out that revenue multiples and growth expectations remain below five-year median and pre-COVID levels, suggesting this upside is not fully priced in. The year might get off to a rocky start, they said, as the market waits for more clarity on President Donald Trump’s policies and potentially wrestles with higher-than-expected interest rates as well as weaker-than-forecast spending from small- and medium-size businesses.
Still, BofA said more powerful digital agents could begin displacing workers in call centers and industries like software engineering and marketing as soon as the second half of the year. That could expand, they said, to biopharmaceuticals, human resources, nursing, education, cybersecurity, manufacturing, and law by 2026 or 2027.
Salesforce and Palantir lead the way
At the forefront of this shift is Salesforce, with CEO Marc Benioff saying the household name is behaving like a startup and reworking much of the way it does business to ensure its products do not become obsolete. Case in point is the software giant’s new AI offering, Agentforce, which allows users to quickly build and deploy digital assistants.
The company is charging $2 per use case, a shift from its traditional subscription-based pricing model. Salesforce closed 200 deals when the product debuted in the final week of Q3, Benioff told analysts on the company’s December earnings call.
This pivot is the biggest reason investors have piled into one of Fortune’s top 15 stock picks for 2025, with shares jumping nearly 50% since May to trade just below the $330 mark. Many analysts think the stock still has plenty of room to appreciate, with those surveyed by S&P Capital IQ placing a median price target of $410.
When it comes to building off last year’s performance, however, one software giant stands well above the rest. Palantir earned admission into the S&P 500 in September and was the best-performing stock in the index, with shares soaring 340%. The longtime military and intelligence contractor used its new Artificial Intelligence Platform, or AIP, to power a massive expansion of its commercial business, defying many on Wall Street baffled by its unorthodox sales strategy or mercurial CEO, Alex Karp.
Unsurprisingly, the stock is no longer cheap, trading at 175 times its projected earnings over the next 12 months, according to S&P Capital IQ estimates. That’s well ahead of the multiples of most of its peers, including Microsoft at 32, Salesforce at 30, and Oracle at 25. However, noted tech bull Dan Ives thinks Palantir is still worth the buy, comparing the stock to Argentinian soccer star Lionel Messi, who is widely viewed as one of the sport’s all-time greats.
“We believe Palantir has a credible path to morph into the next Oracle over the coming decade with AIP leading the way as many on the Street continue to be huge skeptics of the Messi of AI,” he wrote in a late December note.
Like BofA, Ives believes 2025 will end up being a banner year for software. Besides Palantir and Salesforce, his top picks include Oracle and IBM. Among BofA’s favorite plays, meanwhile, are names like HubSpot, Microsoft, and ServiceNow.
