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Everyone is obsessed with AI these days, so it’s interesting whenever I come across a skeptic.
That's why Guggenheim's latest IT spending report caught my eye. Principal analyst John DiFucci touts the “new normal” for software companies, a reality in which corporate budget growth isn't likely to accelerate again anytime soon. He bases his outlook on data from technology research firm ETR, which suggests that IT budget growth expectations for July are roughly the same as last year.
What about the surge in AI spending, with Nvidia's revenue soaring as companies build massive language models and beef up their datacenter capacity for the AI era?
DiFucci argues that it hasn't yet made inroads in software, partly because of cost but also partly because companies don't yet understand what AI can help them with (as I've written recently, the same is true for consumers).
Companies may end up investing in GenAI eventually, but not yet.
“Most of the spending on AI is being done by AI companies and public cloud companies preparing to run AI workloads for AI companies,” DiFucci wrote. “That's not to say we won't see that shift at some point as companies start buying Copilot and other AIs in bulk, or building their own LLMs as the cost of building and training them continues to fall. But right now, that doesn't seem to be the case.”
Moreover, companies don't appear to be holding back on IT spending today because of future AI spending, he said: “Given the uncertainty about how beneficial AI spending will be to businesses, we don't believe expectations of future AI spending are causing a tougher IT spending environment today.”
The “build it and they will come” approach of companies like Microsoft, Alphabet, and Meta may pay off in the future.
But while some analysts argue this is the year AI will prove its worth in practice (Forbes magazine called it the “year of practical AI”), exactly how that will happen remains unclear.
For DiFucci, that means about half of the software companies he covers may have to recalibrate their big AI-related revenue expectations, including companies like Palo Alto Networks, Salesforce and Workday.
At the same time, there are plenty of business leaders who are (perhaps a little too enthusiastically) talking about how their companies and their customers are already using AI, but as Jefferies' Brent Till noted earlier this year, we won't start to see the benefits until 2025.
If corporate number-crunchers are tightening their purse strings, AI may have to prove its value before spending begins.
Julie Hyman is Yahoo Finance Live, weekdays from 9am-11am ETFollow us on Twitter Jules Cimentand read Her other stories.
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