Thursday, June 20, 2024

AI-related spending expected to comprise 10% of 2024 IT budgets: Wedbush

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Artificial intelligence-related spending will comprise 8% to 10% of businesses’ IT budgets in 2024, according to a review of first quarter financial results by Wedbush.

This demonstrates a remarkable acceleration in AI spending after it comprised less than 1% of IT budgets in 2023.

“While the first wave of the AI Revolution is being led by the Godfather of AI Jensen and Nvidia (NASDAQ:NVDA) along with Nadella/ Redmond…now the 2nd/3rd/4th derivatives of this $1 trillion of spending over the next decade is hitting the shores of the tech sector,” said Wedbush analyst Daniel Ives and others in a note.

“We are seeing more breadcrumbs on the unprecedented AI spending wave from Arm Holdings (ARM), Palantir (PLTR), Oracle (ORCL) and, others which has reinforced this enterprise AI spending cycle,” they added.

Tech titans Meta (META) and Apple (AAPL) are pouring resources into consumer AI products, and a flood of software companies are ready to enter the fray.

Gartner forecasts global spending on AI software will surge to $297B by 2027 as software vendors continue to integrated AI tools into products. The research firm expects more than 70% of independent software vendors will embed GenAI into their enterprise applications by 2026. That figure was less than 1% in 2023.

AI spending is now spreading across the enterprise world with names such as Salesforce (CRM), MongoDB (MDB) and Snowflake (SNOW).

It has already taken solid root at Microsoft.

“We strongly view this as Microsoft’s ‘iPhone Moment’ with AI set to change the cloud growth trajectory in Redmond the next few years, and our recent checks giving further confidence in this dynamic,” Wedbush added.

In particular, Wedbush anticipates that as more Microsoft customers adopt GenAI and Copilot, this will in turn generate more deals for Azure cloud.

“We estimate for every $100 of cloud Azure spend with MSFT the last few years, there is an incremental $35-$40 of AI spend for Nadella & Co. looking ahead,” Ives noted.

And Apple (AAPL) is lined up as the next member of the Magnificent 7 to go all-in on AI.

“We look forward to the WWDC next month, where we believe Apple is set to unveil its long awaited AI strategy to its golden installed base and developer community at WWDC, which begins an AI-driven super cycle starting with a new iPad lineup and then the iPhone 16 this fall,” Ives said.

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