Bank of America analysts predict a breakout moment for software stocks, citing converging positive catalysts that aren’t fully priced into the market yet. Despite impressive rallies of 59% in 2023 and 23% in 2024, the sector still has significant upside potential, according to the Tuesday research note.
The analysts highlight agentic AI as a primary growth driver—an advanced form of artificial intelligence that can autonomously accomplish complex tasks on behalf of users. This represents a significant evolution from current AI tools, with potential real-world applications emerging as early as the second half of 2025. The rapid adoption of AI technology has outpaced previous major technology cycles like PC and internet adoption, suggesting agentic AI deployment could arrive sooner than many expect.
The disruption potential is substantial, with Bank of America noting that emerging second-generation AI tools already demonstrate PhD-level intelligence on certain tasks and could begin displacing workers as soon as late 2025. This technological leap could help well-positioned software companies capture market share from the massive $12 trillion services industry.
The monetization timeline appears promising for investors who expressed concerns last summer about returns on massive AI investments. Qualitative commentary about enterprise AI adoption during earnings calls is expected to evolve into concrete revenue indicators this year, with more meaningful monetization projected for 2026.
Beyond agentic AI, the analysts point to two additional tailwinds: continued cloud migration and accelerating IT budgets. These factors should drive revenue growth into next year, yet remain underappreciated by the market. Current revenue multiples and growth expectations for software stocks still sit below five-year median and pre-pandemic levels, suggesting room for expansion.
Top stock picks include Salesforce, HubSpot, and Microsoft, which the analysts believe will benefit most from agentic AI potential, with projected upsides of 36%, 21%, and 23% respectively. Additional recommendations include ServiceNow, Datadog, GitLab, Global-E Online, Five9, Monday.com, and Asana—most offering similar double-digit upside potential from current levels.
Key Quotes
It’s software’s ’time to shine’ as ‘positive catalysts converge’
Bank of America analysts made this statement in their Tuesday research note, emphasizing their bullish outlook on the software sector despite recent strong performance. This reflects their view that multiple favorable factors are aligning simultaneously to drive further growth.
We would not disregard the near-term disruption potential of emerging second-generation AI tools that already exhibit PhD-level intelligence on some tasks and could displace workers as early as 2H25
The analysts issued this warning about the rapid advancement of AI capabilities, highlighting how quickly agentic AI could transform the workforce and create opportunities for software companies to capture market share from traditional service providers.
Our Take
This analysis represents a significant shift in the AI investment narrative. After months of concern about AI returns on investment, Bank of America is essentially calling the bottom of the skepticism cycle and pointing to concrete monetization pathways. The focus on agentic AI is particularly noteworthy—this represents the next evolution beyond current generative AI tools, moving from content creation to autonomous task completion. The 2H25 timeline for worker displacement is aggressive and suggests we’re closer to transformative AI applications than many realize. The fact that software stock valuations remain below historical averages despite AI potential indicates the market hasn’t fully priced in this transition. For investors, this creates a compelling entry point, particularly in enterprise-focused companies like Salesforce and ServiceNow that can integrate agentic AI into existing customer relationships. The convergence of AI monetization, cloud migration, and IT budget growth creates a rare triple catalyst scenario.
Why This Matters
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