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Increases in IT Spending and a Durable View on Growth
Morgan Stanley recently published its first-quarter CIO survey. To summarize the report, CIOs across various industries were asked about their projected IT investment budgets, particularly in the context of the Ukraine/Russia crisis and rising rates. They all expressed their intention to continue spending aggressively on IT despite initial concerns that the conflict in Ukraine and rising inflation would put the IT industry at risk. The survey found that the overall budget increase for the IT sector is estimated at 4.2%.
Compared to 2021, growth rates of IT appear stable year-over-year. Everything from telemedicine to more online shopping have contributed to the growth of the IT budget throughout the pandemic. This shift to a more sophisticated digital economy across every sector is projected to continue past the immediate health crisis, creating a durable growth opportunity.
Of the four primary sectors within IT -- hardware, software, communications, and services -- hardware was the only one for which CIOs intended to reduce their original 2022 budgets, by an average of -3.1%. However, the hardware sector is still projected to see growth of 2.5%. While the crisis in Ukraine has some impact on this budget decline, the larger economy-wide emphasis on software innovation is shifting budgets away from hardware and into SaaS (Software as a Service) instead. CIOs expect data centralization in the cloud to increase from 18% (today) to 39% by the end of next year.
SaaS allows apps to be delivered via the internet as opposed to downloading and maintaining softwares and hardwares. SaaS -- also called web-based, on-demand, or hosted software -- manages not just access to the application, but also the security, availability, and performance. One of the most in-demand characteristics of SaaS is its customizability, which companies across industries are interested in for improved efficiency, data management, security, and customer experience. SaaS adoption and cloud migration are the top priorities for investment for the CIOs surveyed, with projected growth of 4.8%.
In the context of the Ukraine/Russia crisis, CIOs note that, yes, cybersecurity has always been a priority. But as new attacks and threats evolve in their sophistication, cybersecurity software, machine learning, and artificial intelligence are evolving their response solutions. There is still room for growth and innovation in the sector as well.
One important takeaway for investors from Morgan Stanley’s CIO survey is that the top priorities are clearly cloud migration (SaaS adoption), cybersecurity, digital transformation, AI and machine learning, and analytics. All five priorities are core investment themes for TrueShares’ AI and Deep Learning ETF, LRNZ. The other key takeaway is that IT is growing in spite of a highly volatile environment, proving its resiliency and durability alongside forces that many assumed would have put this industry at risk. Analysts are pleasantly surprised by the outcome.
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