Dive Brief:
- Enterprises will greenlight spending on AI projects despite tight reins on IT budgets, according to a Thursday ISG report. The research firm surveyed 300 G2000 company executives in October and November.
- Overall IT spending is expected to rise 1.8% year over year in 2025, roughly in line with expected inflation, Alex Bakker, ISG distinguished analyst, said in the report. In contrast, executives plan to increase AI investments by 5.7% next year, ISG found.
- “Enterprises are continuing to focus on cost optimization and efficiency programs to fund transformation and customer experience enabled by AI,” ISG Principal Analyst Michael Dornan said.
Dive Insight:
AI is just one area of tech spend driving budget expansion. Executives plan to increase spending on IT security, customer experience technologies and a broad range of cloud-based infrastructure, platform and software services, according to ISG.
But AI technologies surfaced as a distinct priority that will account for 30% of the boost to average enterprise tech budgets next year — $3.4 million of an $11.5 million average bump, ISG said.
Technology providers noticed the shift earlier this year. IT service firm Accenture said customers were funneling spend to data modernization and AI without increasing overall budgets over the summer months.
“We're not seeing a change in what our clients are spending on IT,” Accenture Chair and CEO Julie Sweet said during a September earnings call. “But what we are seeing is a continued trend of trying to save money on IT to free up the spending on areas of GenAI.”
Data-hungry large language model technologies are driving up cloud spend and hyperscaler infrastructure investments. Gartner expects end-user cloud consumption to increase spending on the technology 21.5% year over year, reaching $723 billion globally in 2025. Big tech company spending on data center expansions will surpass $180 billion this year, according to Dell’Oro Group research.
Gartner and Forrester forecast larger year-over-year IT budget increases in October and August, respectively. The Gartner analysis included big tech infrastructure spending and Forrester, like ISG, expects IT budgets to increase at roughly the rate of inflation.
ISG expects consolidation in the IT services space next year as more than one-third of organizations double down on existing relationships with their largest providers. At the same time, nearly half of enterprises will turn to new providers for specialized projects, the firm found.
“Service providers have a unique opportunity to act as strategic partners for transformation and as sources of innovation around critical niche capabilities such as AI,” Dornan said.
Most enterprises will maintain their current number of technology providers, even as investments in AI capabilities grow, the study found.
