Global IT Spending Rebound Is Here To Stay Per Gartner
Zacks Investment Research | Jan 16, 2018 09:36PM ET
Worldwide IT spending is projected to total $3.68 trillion in 2018, a 4.5% increase from the $3.53 billion recorded in 2017, as per a recent report by the information technology research and advisory firm, Gartner Inc. (NYSE:IT) . This will represent back-to-back the second year-over-year growth in spending on information technology after witnessing two consecutive years of decline. Notably, in 2015 and 2016, worldwide spending declined 5.5% and 0.6%, respectively.
Per the predictions of the research firm, the turnaround in global IT spending, which started last year, will keep its momentum alive at least till the next year. Gartner forecasts this spending to reach $3.78 trillion in 2019, representing year-over-year growth of 2.7% from the current-year level. If this happens, overall IT spending will cross the previous highest mark of $3.71 trillion reached in 2014.
New IT Trends to Escalate Spending
The worldwide IT spending forecast provided by Gartner indicates major technology trends that include Internet of Things (IoT), big data, artificial intelligence (AI) and blockchain. However, the research firm cautioned that there are a bit of uncertainties in 2018 that include Brexit, unfavorable currency exchange rates and a “possible global recession”. Despite this, the firm believes this won’t impact corporate spending on IT-related products and services.
Per John-David Lovelock, research vice president at Gartner, “Despite this uncertainty, businesses will continue to invest in IT as they anticipate revenue growth, but their spending patterns will shift. Projects in digital business, blockchain, Internet of Things (IoT), and progression from big data to algorithms to machine learning to artificial intelligence (AI) will continue to be main drivers of growth."
Software, Devices & Services to Lead
Per its latest report, every IT segment will witness increase in spending but majority of growth will come from Enterprise Software, Devices and IT Services segment.
The Enterprise Software segment continues to lead in respect of growth rate. It may witness a 9.5% rise this year after registering an increase of 8.9% in 2017, and eventually reach $389 billion. Per the research report, the year will see organizations allocating more budgets toward software-as-a-service (SaaS), majorly by companies operating across “financial management systems (FMS), human capital management (HCM) and analytic applications.”
It is followed by the Devices segment which is projected to grow 5.6% and reach $704 billion. The growth is anticipated to be mainly driven by increase in average selling price of mobile phones which will more than offset the anticipated decline in unit sells. Apart from this, increase of 9.1% in Apple’s (NASDAQ:AAPL) iOS shipment will also contribute to the overall device segment spending growth.
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However, spending on PCs is projected to remain “flat in 2018 even as continued Windows 10 migration is expected to drive positive growth in the business market in China, Latin America and Eastern Europe.”
The next segment which will witness highest growth is IT services. This segment is likely to grow 5.5% year over year and reach the $985 billion mark in 2018.
Spending across the Data Center Systems segment may see a meager 0.6% increase and touch $179 billion. The Communication Services segment is likely to witness growth of 2.4% and reach $1.43 trillion.
In 2019, Enterprise Software segment will continue to lead with 8.4% projected growth, while IT Services, Devices and Communication Services segments will witness a respective increase of 4.6%, 0.9% and 1.1% in spending. Spending on Data Center Systems will, however, decline marginally by 0.2%.
Tax Reform & AI to Play Key Roles
The latest trends like cloud-based platforms, AI tools, Augmented/Virtual (AR/VR) reality devices, autonomous cars, advanced driver assisted systems (ADAS), as well IoT related software and hardware have been driving overall IT spending.
Furthermore, we believe this spending will be further spurred by the recent Tax Reform. As companies across other sectors might utilize savings from lower tax as well as cash repatriations for technological up-gradation, this will again boost IT spending.
Per Gartner, AI will be the main driving force of overall IT spending and projects that the technology will create approximately $2.9 trillion in new business value opportunity by 2021. Lovelock stated, "That business value is attributable to using AI to, for example, drive efficiency gains, create insights that personalize the customer experience, entice engagement and commerce, and aid in expanding revenue-generating opportunities as part of new business models driven by the insights from data."
Therefore, it is wise to shift your focus on pure-play AI companies as these firms are likely to gain the most from the upswing in IT spending. Companies like NVIDIA (NASDAQ:NVDA) , Apple, Microsoft (NASDAQ:MSFT) , Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) aka Google are among the front-runners in this space.
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