The resurgence of software stocks is one of the hottest themes in the stock market right now. Over the last month, many stocks within the software space have shot up more than 20%.
I reckon the sector’s momentum could continue in 2025. Below, I’ll explain why, and also highlight some stocks for investors to consider.
Software’s playing catch-up
Over the first three quarters of 2024, the software sector underperformed badly. One key factor behind this underperformance was the rapid advance of artificial intelligence (AI). Before committing to new software investments, businesses wanted to see what AI could do. This slowed growth across the industry.
Another factor was general economic uncertainty before the US election. This also slowed growth as many firms were reluctant to invest in new technology.
Exciting outlook
But the landscape has changed in recent months. With Donald Trump winning the US election, there’s now more economic clarity. He’s theoretically economy-friendly and this should give firms the confidence to invest in new technology. Trump’s also keen on less regulation. This could mean more M&A activity for smaller software companies.
Businesses (and investors) are also realising the AI features software companies are rolling out have a lot of potential. An example here is UK software firm Sage’s new Copilot tool. This is designed to empower accounting teams and help them work faster. It could help smaller businesses streamline their accounting processes in the years ahead.
This change in the backdrop is reflected in the performance of many software stocks. Just look at the incredible one-month gains in the table below.
| Stock | Market | Type of software | 1-month return | 1-year return |
| Sage | UK | Accounting | 25% | 11% |
| Beeks Financial Cloud | UK | Financial data | 10% | 192% |
| Palantir | US | Data analytics | 24% | 308% |
| Snowflake | US | Data analytics | 50% | -5% |
| Salesforce | US | CRM | 9% | 40% |
| Shopify | US | E-commerce | 32% | 59% |
| ServiceNow | US | IT service | 11% | 60% |
| CrowdStrike | US | Cybersecurity | 7% | 46% |
More gains in 2025?
Now, I don’t expect these kinds of stocks to continue performing this well. But I do think the software sector could deliver attractive returns in 2025.
I reckon growth across the sector will be strong. And I believe investors will continue to show interest in (and pay for) companies that are releasing innovative new AI products.
Stocks I like
I continue to believe Sage has a lot of potential. It’s in my 10 top holdings. I also like London Stock Exchange Group, which is currently working with Microsoft to develop AI features. It’s also in my 10 top.
But one stock I think could outperform these two is cybersecurity firm CrowdStrike (NASDAQ: CRWD), in which I’ve recently been investing.
This company continues to grow at a rapid clip, despite the fact it was responsible for a global IT outage early in the year. Recent Q3 results showed 29% revenue growth and 97% customer retention, which is impressive.
It’s also quite defensive in nature. While companies can cut back on non-essential areas of software if they want to conserve costs, they can’t cut back on cybersecurity. The risks associated with cyberattacks are simply too high.
I’ll point out that this stock’s expensive (the price-to-earnings ratio is about 80) so it’s likely to be volatile. If we were to see a slowdown in growth for some reason (like another damaging IT outage), it could fall.
Taking a five-year view though, I think it can do well. Over the next half-decade, the cybersecurity industry’s likely to experience prolific growth and this is the fastest-growing company in that space.
