BANK OF AMERICA: These are the 10 software stocks to buy in 2020 and the trends that will help them rule the market's biggest sector

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• Bank of America's Kash Rangan says investors in the software industry will have to be choosier in 2020 after huge gains for the stocks this year.
• Companies that have recently underperformed because of big acquisitions could make comebacks, while artificial intelligence and the DevOps trend will also play important roles, he says.
• Rangan writes that new acquisitions, the late stage economy, and a shift away from momentum stocks could all complicate life for software stocks next year.
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Tech stocks have been among the market's leaders for a full decade, and 2019 has been a huge year for software stocks.

Bank of America research analyst Kash Rangan says it's time to be more careful about what you buy in one of the highest-flying industries of the day. He's taking a "Market weight" stance on software, saying that while business conditions are strong, investors are likely to find reasons to look at other sectors and away from companies considered momentum stocks.

"We are increasingly selective on the sector given macro economists are calling for a late stage economic cycle with a tilt towards value, and concerns about a tech/trade war," he wrote in a note to clients. "We identify companies that own their franchises and are dominant in their end markets."

Another potential source of turbulence is this: He also expects elevated IPO and M&A activity next year, something that would jolt stocks that might be acquired but lead to penalties on acquirers, a trend that played out in 2018 and 2019.

That's one of Rangan's top themes for 2020, as he says stocks that suffered recently after they announced acquisitions could gain next year when the benefits of their deals start to show up.

He names four other trends that will separate software's winners from its losers in 2020: the combination of trends like cloud computing and social media, which will change customer experiences and expand the digital economy; growth in DevOps; the transformation of corporate back offices; and artificial intelligence going mainstream.

Because it stands to tap into several of those trends, Microsoft got a raise by Rangan to $200 a share from $162. That implies a gain of 27% in the next year and would take the company's valuation to about $1.5 trillion.