Microsoft To Amazon: Global IT Firms Show Improvement In Budget Outlook

Cybersecurity, data modernisation, generative artificial intelligence, digital transformation projects, robotics and automation are among the top investment priorities for global information technology firms during the March quarter. But there is only a slight improvement in the IT budget environment, according to Citi's CIO survey.

The overall network and traffic management IT budget growth expectations rose from 2.8% in the December survey to 2.9% in the March quarter, inching closer towards the historical average of 3%, Citi said in a note on April 15. The improvement is driven by a stronger outlook for the Middle East and Africa IT spending, while the US IT budget growth expectations diminished slightly to 2.2% from 2.5% in December.

The global economic conditions appear to be stable and improving slightly, with only a modest 0.7% upward revision to the trailing three-month IT budgets, the note said. Cloud-consumption takeaways were a bit cautious with a slight downtick in prioritisation and growth.

On the generative AI front, Microsoft Corp. remains the top vendor that the chief investment officers are considering as a GenAI partner, far ahead of Amazon.com Inc and Google LLC.

Here are the key takeaways on the sector-specific impacts of Citi's survey on IT budget outlook.

• Demand environment remains relatively unchanged from late 2023.

• In the near term, this likely means a slow start to the year for IT services companies as they face continued pressures in discretionary spending and decision-making.

• Enterprise clients remain focused on transforming their digital cores to be better prepared for tech waves like GenAI as well as on cost-saving efforts.

• Remains cautious on the cadence of any potential recovery.

• The potential for a modest spending recovery through the years is there but visibility into this still remains relatively low.

• Some of our top 'buy'-rated IT services names include Globant S.A., Accenture PLC and ExlService Holdings Inc.

• Budget scrutiny persists with loosening wallets only occurring once return on investment is proven.

• Application software categories remained among the top CIO priorities in the December survey.

• Sees the cloud consumption takeaways as positive for Microsoft while it's more mixed for other consumption names.

• "We are most positive on Elastic NV and Snowflake Inc as we see a higher likelihood of GenAI monetization near term."

• The improvement in cloud communications is complimentary of GenAI, with companies advancing their cloud communication journeys to take advantage of copilot and chatbots improving the overall customer.

• Consistent with last year as the majority of CIOs maintained prudent yearly security budget growth expectations.

• This modest growth is supported by the resiliency of cyber as a portion of total IT budgets.

• While cyber is still the top investment initiative, data analytics/genAI is quickly closing the gap at the No. 2 spot and is only marginally behind.

• Cyber remains the top discipline for vendor consolidation.

• View this quarter's survey results as similar to the 4Q result, with a solid budgetary background, now approaching historical average growth levels.

• Automation remains one of the top areas of IT investment.

• Financial software and productivity/collab apps were cited as neutral from a net budgetary priority perspective.

• Human resource software remains a weak point in its coverage from a budgetary priority perspective.

• The willingness of the CIOs to fund gen AI projects with net-new funding should be supportive for growth.

• Views the improvement in IT budgets as a positive sign for stabilising public cloud spend.

• The CIOs now expect public cloud spending to grow 7.2% over the NTM.

• Encouraged that 29% of the CIOs expect their spending on public cloud infrastructure to grow between 10% and 25%.

• Incrementally confident in our projections for both Amazon Web Services and GCP Applied Technologies Inc., whereby it projects each to deliver accelerating growth throughout 2024.

• Encouraged by recent commentary from Amazon CEO Jassy that optimizations continue to attenuate and the focus among enterprises has shifted from how to save costs to how to modernize their infrastructure.

• Digital transformation and generative AI remain among the companies' priorities in the survey.

• IT budget growth expectations are slightly lower QoQ, but still at encouraging levels.

• Views the CIO results as supportive of expectations that these investments will continue.

• Digital infrastructure and transformation continue to be prioritised among the enterprise customers of tis covered companies.

• However, its understands that there are also concerns about optimising spend and capacity when possible.

• Maintains 'buy' ratings on Digital Realty Trust Inc. and Equinix Inc.