Investing.com -- As investors step into 2025, the software sector finds itself at an intriguing juncture. Software (ETR:SOWGn) stocks have become less crowded over recent years, though the landscape remains mixed as 2025 begins.
Bernstein said investor interest in the sector waned through 2024 after lofty expectations failed to materialize. However, a late-year sentiment shift suggests renewed attention, particularly in cloud and AI-related names.
Microsoft (NASDAQ:MSFT) has regained its position as the most crowded software stock, followed by Oracle (NYSE:ORCL), ServiceNow (NYSE:NOW), Salesforce (NYSE:CRM), and Confluent. Meanwhile, companies like CrowdStrike (NASDAQ:CRWD), Twilio (NYSE:TWLO), Workday (NASDAQ:WDAY), Okta (NASDAQ:OKTA), and Snowflake (NYSE:SNOW) remain the least crowded, presenting potential opportunities for investors.
Despite declining crowding levels, software stocks remain above average in the tech sector. The risks of crowded trades include liquidity issues during market downturns, as seen in past episodes of volatility. Bernstein's analysis highlights that in periods of market stress, the most crowded stocks tend to underperform, making diversification crucial.
While enthusiasm for AI-driven growth persists, Bernstein warns that generative AI is still in its early stages. Investor caution remains high, with some stocks struggling to meet expectations. As software spending trends shift, selectivity will be key for navigating the sector in 2025.