Morgan Stanley 2025 IT Industry Outlook: CIO predicts a moderate increase in IT spending this year, industry optimism has improved.

The latest CIO survey from Morgan Stanley shows that CIOs have reiterated their expectation for moderate acceleration in IT budget growth for 2025, increasing from 3.4% in 2024 to 3.7% in 2025. The budget growth expectations have moderately increased, improving the optimism for the IT industry in 2025. With the mild consecutive increase in IT budget growth expectations, along with improvements in forward-looking indicators, Morgan Stanley has reiterated the positive trend for the IT industry towards 2025. As AI/ML initiatives continue to rank at the top of CIO priorities and defensive lists, the returns on these technologies seem to be becoming clearer. Meanwhile, the expectations for budget growth in 2025 in the fourth quarter of 24 have slightly improved (with a 3.7% increase compared to the previous year), compared to the forecast of a 3.6% increase in the third quarter. Importantly, the expectations for IT budget growth continue to rise towards the longer survey period (10-year average of +4.1%). At the industry level, CIOs expect accelerated expenditure growth for software (up 30 basis points to 3.8%), communications (up 13 basis points to 2.9%), and IT services (up 15 basis points to 2.8%) in 2025. Morgan Stanley's data shows that hardware expenditure in 2025 is expected to moderately slow down (up 8 basis points to 1.6%). However, from a cross-industry perspective, all IT industries surveyed by Morgan Stanley have seen positive revisions in their quarterly budget growth expectations for 2025, with the most significant being software (up 9 basis points) and IT services (up 6 basis points). In other words, the data from the fourth quarter of 2024 indeed indicates some regional differences - with US CIOs continuing to expect higher IT spending growth for 2025 compared to their EU counterparts, with a 3.8% increase compared to the EU's 3.2% increase. Furthermore, while the EU CIOs expect a slight decline, US CIOs anticipate a moderate improvement in IT budget expectations for 2025. A key CIO sentiment indicator - the 1-year upside/downside ratio - measuring the ratio of CIOs expecting budget increases to decreases, rebounded to 1.0 in the fourth quarter of 24, reflecting a balance between CIOs expecting budget increases and those expecting decreases for 2025. The continuous moderate increase in budget growth expectations has impacted Morgan Stanley's long-term survey average, reaffirming confidence in a more constructive 2025. The increasing certainty in the macro background along with gradual visibility into the development of AI capabilities should sustain the continuously rising budget growth expectations in the future.