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These days, everyone is so gaga about AI that whenever I encounter skepticism, it piques my interest.
That’s why the Guggenheim’s latest brief on IT spending caught my attention. Senior analyst John DiFucci calls for a “new normal” for software companies – one in which corporate budget growth isn’t going to accelerate anytime soon. He based this outlook, in part, on data from technology researcher ETR that shows IT budget growth expectations for July are about the same as last year.
What about the AI spending boom? What about Nvidia’s parabolic sales surge as companies ramp up their data center firepower to build their big language models and prepare for the AI era?
It hasn’t been integrated into software yet, DiFucci says. That’s partly because of cost, but also because companies haven’t yet figured out what AI is for. (As I wrote recently, this is also the case for consumers).
Companies might end up spending on GenAI, but not yet.
“Most of the spending on AI is being done by AI companies and public cloud companies that are gearing up to run AI workloads for AI companies,” DiFucci wrote. “That’s not to say we won’t see that shift at some point, when companies start buying Copilot and other forms of AI in bulk, or start building their own LLMs, as the cost of building and training them continues to decline. But that doesn’t appear to be the case right now.”
What’s more, he added, businesses don’t appear to be delaying their IT spending today to invest in AI tomorrow: “Given the uncertainty about whether AI spending will help businesses, we Let’s not believe expectations for future AI IT spending is driving what appears to be a more challenging IT spending environment today.
The “build it and they will come” approach from companies like Microsoft, Alphabet and Meta may well pay off in the long run.
But despite some analysts’ insistence that this is the year AI proves itself in practice (Forbes called it “the year of AI practicality“), we still don’t know exactly how.
For DiFucci, that means about half of the software companies he covers may have to raise their expectations for AI-related revenue. This includes companies like Palo Alto Networks, Salesforce and Workday.
At the same time, many business leaders will tell you (a little too readily, perhaps) how they – and their customers – are already using AI. But like Jefferies’ Brent Thill said earlier this yearwe will have to wait until 2025 for these revenues to begin to materialize.
If corporate figures keep their purse strings tight, AI may have to prove its value before they start spending.
Julie Hyman is the co-presenter of Yahoo Finance Live, weekdays 9 a.m. – 11 a.m. ET. Follow her on Twitter @juleshymanAnd read his other stories.
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