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The information technology sector has been on a tear of late, supercharged by the AI spending spree. But now the IT sector faces headwinds that will put certain projects on hold.
Rising IT prices are starting to hamper overall spending
Spending raced ahead in the first half of this year as companies upgraded fleets of PCs and sales of smartphones surged, according to a recent presentation by IDC, a tech market research firm. Much of that spending was to get ahead of anticipated IT inflation and won’t be repeated in the second half.
Rising prices will be a drag on overall IT spending for the rest of the year, hitting IT consulting, HR software, laptops and other areas.
“Buyers continue to navigate an environment where cost pressure is really coming from every direction at the same time,” said Stephen Minton, vice president at IDC, during the presentation.
Even before the Iran war sent oil prices higher, several issues challenged the IT sector, including tariffs, geopolitical turmoil and economic uncertainty. “All of those risk factors are really inflationary,” Minton said.
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AI and cybersecurity are the exception to the rule
Spending on artificial intelligence and cybersecurity won’t let up, though: The two big exceptions to any IT belt tightening. Big Tech will keep spending on data centers, but they may have to defer some of their expansion plans into 2027 because of hardware costs.
Memory prices have absolutely skyrocketed, causing Alphabet, Amazon, Meta and Microsoft to fork over substantially more money for the memory chips needed in AI data centers. When it comes to the semiconductor sector, ’Memflation’ will destroy, or at least delay, non-AI demand into 2028, to varying degrees depending on the application,” said Rajeev Rajput, an analyst at Gartner, in an April press release.
Businesses will keep investing in AI, too, but with a bigger focus on seeing a clear return on investment, on a faster timeline. “We are at a point where measurable business value needs to be provided in order to continue with the rate of IT spending growth that we’ve had in the last couple of years,” said Minton.
Meanwhile, all the geopolitical turmoil spells more cybersecurity spending, as threats keep rising. Security spending “really benefits from geopolitical disruption,” said Minton. That benefits cybersecurity vendors such as CrowdStrike, Palo Alto Networks, Fortinet and Zscaler.
IDC now expects IT spending growth will be significantly weaker this year than in 2025. However, there’s still an expectation that spending growth picks up again in 2027.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.