Despite the trade and geopolitical uncertainties, the current environment is quite favourable for the IT industry, and notably B2B services. The industry is enjoying Goldilocks conditions with the impulse of AI technology, which is only at an early stage of its development and far from having unlocked its full potential in terms of efficiency and productivity benefits, but also a broad-based digital update of the manufacturing industry, including an increasing reliance on data-driven operations and software-enhanced processes. The stars are perfectly aligned as lower interest rates in key developed countries should encourage companies to increase their investments while the rapid development of so-called “disruptive” technology such AI is expected to drive capital into IT spending. We expect the average annual growth of global IT spending at 5-7% over 2025-2027, but we see a higher demand in both the US and Europe due to an expected catch-up in the capex cycle after the temporary freeze during the 2022-2023 inflationary period. We expect a slightly more moderate demand in Asia as the tightening of trade conditions between the US and the rest of the world and overall concerns over technology transfers between the US and China, which are both competing for AI leadership, threaten to weigh on IT spending.
Services are expected to collect most of the incremental increase in IT spending in the short and mid run as low maturity and expensive costs of AI-powered machines should curb heavy corporate investment into hardware. As a result, software and to a lesser extent advisory services are expected to take the lion’s share of the likely IT investment boom in the coming years, and should expand annually by over +10% on average in major markets by 2027. The steep learning curve for corporates on digital and AI solutions that not only increase their efficiency but for some of them materially change their operating models assume a strong and sustainable demand for IT expertise and training. Paradoxically, the recent inflationary period turns out to have had positive side effects for the industry as higher operating costs and tighter cash management requirement should force companies to focus further on profitability and efficiency, and as a result resort more to automation and digital solutions to reach that goal. This is clearly a growth leverage that software and AI specialists will benefit from.
The ongoing digitalization of the global economy puts personal data as a key input to increase efficiency, reduce operating and logistic costs, improve business processes and anticipate risks, but also to gain B2C market share by developing more custom-tailored products and services. The outstanding expansion of data across the globe and its increasing strategic role should ensure a bright outlook for cybersecurity software and also cloud services, under the condition of a ramp-up of data center capacities worldwide as expected.
Amid potential pitfalls, the industry will have to monitor closely the regulatory framework that is being tightened by national governments and sub-sovereign administrations, notably in Europe where data privacy and protection is a key priority for political forces. Looser regulations in the US for AI and cloud services should inversely favour a deeper integration of those technologies in the economy, although this could bring about a higher disruption risk due to technology breakage and/or cyber-attacks. The high concentration of cutting-edge semiconductor conception and production capacities, as well as the most efficient AI technology, amid a couple of US and Chinese hyperscalers is another source of risk for the industry, specifically in Europe where technology dependency is elevated. The digital step-up of the economy should also come along with an incremental increase of infrastructure and power capacities to limit shutdown risks.
Industry leaders should continue to secure very attractive margins near or above 20% and the gradual penetration of highly profitable AI-related businesses is expected to incrementally shore up profits. Inversely, smaller players could suffer from tense competition and widening divergences in terms of technology specialization into software and advisory segments. The programming segment could also suffer from a deterioration of profits (5-10% margin) due to the increasing performance of AI-inferred platforms.
