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Pro Analysis

Wells Fargo recommends Salesforce, software stocks for 2017 as companies seek to manage the cloud

Marc Benioff, CEO of Salesforce.
Adam Jeffery | CNBC
Marc Benioff, CEO of Salesforce.

Wells Fargo Securities initiated a group of software stocks with an outperform rating due to the potential for higher earnings in 2017.

"Software spending is expected to outpace other IT segments and grow at a CAGR [compound annual growth rate] of 7.1 percent from 2016E to 2020E, compared to the overall CAGR of worldwide IT spending (excluding software) of 3.5 percent over the same period," equity analyst Philip Winslow wrote in a note to clients Tuesday.

He says businesses continue to turn to cloud software technology as a solution to increase operating scale, reduce costs and simplify processes.

"Sitting at the 'top of the stack,' software is fundamentally the value-additive element of IT for businesses — playing a critical role in driving revenue growth and improving productivity — which we believe positions the industry to continue to deliver above-average growth relative to the broader market, as well as other technology segments," Winslow wrote.