After a "topsy-turvy" 2024 for enterprise software, Evercore analysts expect stocks in the industry will push higher in 2025, helped by generative AI. They named Salesforce stock, Microsoft and Oracle among their top picks in a note to clients Wednesday.
"We believe the durability of software business models and the emerging opportunities associated with Gen AI put the sector in a strong position to grind higher in 2025," the Evercore team led by Kirk Materne wrote. "While much of the focus this year has been on the impact of Gen AI on the software industry, we believe the ongoing shift by enterprises towards digital and the need to differentiate via technology continues to account for steady levels of investment across the broader software ecosystem."
While software stocks underperformed in the first half of the year, Materne highlighted that the iShares Expanded Tech-Software Sector (IGV) exchange traded fund — an industry index that includes more than 100 enterprise software players — is now outperforming the S&P 500. IGV has gained more than 20% since the start of October.
Oracle Stock, Salesforce: AI Boost
Heading into 2025, Salesforce is among top picks from Evercore analysts. The firm's new client note called 2025 the "Year of Agentforce," a reference to Salesforce's AI agent tool. Salesforce unveiled the "2.0" version of Agentforce on Tuesday.
"While investors understand that revenues will ramp over time, we will continue to look for evidence that Agentforce could ultimately drive a return to +10% growth," Materne wrote. "Early data points are strong, with channel color upbeat."
Salesforce stock has gained 33% this year entering Wednesday, including an 11% rally that followed its fiscal third quarter earnings report Dec. 3.
Oracle is another top pick. "We believe the risk/reward continues to look attractive as we head into 2025, especially after the recent post-earnings pullback," Materne wrote.
Oracle has rallied 61% this year, on pace for its best single-year price gain since 1999. But shares have pulled back by about 10% since Oracle's fiscal Q2 earnings results published on Dec. 9 missed expectations.
Materne expects Oracle's cloud infrastructure business can maintain a sales growth rate of more than 50%, helped by AI. He also projects demand for Oracle's cloud-based apps will accelerate.
Microsoft Seen Bouncing Back
Another top enterprise stock to watch is Microsoft, according to Evercore.
Despite the strong recent run, Microsoft stock's 20.9% gain this year has the software stalwart underperforming both the S&P 500 and the IGV ETF. But Evercore expects stronger performance in 2025. Investor focus will remain on revenue growth for the company's Azure cloud business, which Materne expects will accelerate as more AI chip capacity becomes available.
Microsoft stock has rallied 7% this month and is approaching a 468.35 consolidation pattern buy point, according to MarketSurge.
Other picks from Evercore include database management firm Snowflake as their top idea for high-growth and HR software firm Workday as a top pick for a "re-rate" or increase in trading multiple to its free-cash-flow.
Watching Agentic AI For Oracle Stock, Salesforce
One big trend to watch for 2025 is the rise of so-called "Agentic AI," the term for autonomous AI agents offered by Salesforce, Microsoft, Oracle, ServiceNow and others. The agents could represent a $61 billion market opportunity, in Evercore ISI's view, and a "first step" for enterprises adopting AI.
"Given the first killer use case for ChatGPT was search, some of the first benefits are naturally in the consumer market (i.e. Meta using AI in ads)," Materne wrote. "However, we believe the focus is naturally starting to shift to enterprise use cases and we believe that the launch of Agentforce in September was helpful in laying out the case for how persona-based agents can deliver value to enterprise."
On the stock market today, Oracle stock was down a fraction early, near 169, but rebounded a bit in midmorning trades. Salesforce stock was also up fractionally, at 351.23, coming off its Agentforce announcement late Tuesday. Microsoft stock was down fractionally though. The overall IGV was down a half-percent in recent action.
