For organizations striving to remain competitive in an ever-evolving business landscape, staying ahead of the curve is always going to be a priority. If an uptick in demand is anticipated, accelerated hiring and increased investment will naturally follow. On the other hand, if a downturn is more likely, then the focus shifts to optimally realigning existing resources. Either way, go-to-market leaders are tasked with balancing their organizations' investments to maximize their value and ROI.
Fortunately, this cycle is gearing up to be in the technology industry's favor, as technology spending finally begins to approach pre-pandemic levels (Gartner forecasts that worldwide IT spending will grow by 6.8% in 2024, totaling $5 trillion). This is especially applicable to infrastructure software spending, which typically makes up a very large portion of overall tech spend. This type of investment is likely to always grow at a steady pace as technology demands continue to grow as well, but a major shock to the system pushed this growth off course over the past few years.
A Brief Pandemic Retrospective
When the COVID-19 pandemic hit in early 2020, everything came to a halt for a while as the world settled into an unprecedented situation. However, a boom in tech spending soon followed as the work-from-home surge spurred massive tech investments. By late summer 2020, tech spending was exploding across the enterprise, and this continued for about a year-and-a-half throughout the duration of the height of the pandemic. This was the peak of tech spending, with so many new projects being created that integrator backlogs became overwhelming and implementation resources ran scarce — but then demand dropped.
After the pandemic's initial shock wore off, most businesses realized they had invested in more hardware and software than they may have needed, so they shifted focus to getting everything implemented versus purchasing new solutions. At the same time, interest rates started to rise, ultimately resulting in a "boom to bust" situation where the tech industry essentially ended up experiencing a mini recession. This lasted throughout 2023, but 2024 is looking a lot more promising for tech.
Today's Tech Spending Landscape
This year, with most organizations having gone through their pandemic tech backlogs, tech spending will return to pre-pandemic levels and bring the steady state of growth back on track. Infrastructure software, which enables and supports all essential programs and applications, is where most of the spending is going to be concentrated. This is typical, as organizational infrastructure needs will continue to grow alongside the emergence and implementation of new technologies — such as artificial intelligence.
We're currently in the early stages of the AI boom, and AI-powered solutions require robust infrastructure to function correctly and offer the most value to the businesses that implement them. But we're still waiting for true AI disruptors to emerge, and infrastructure providers will see a huge surge in demand once the AI disruptors establish themselves. In fact, all the hyperscalers are already preparing their infrastructures for the massive wave of AI solutions that are to appear in the coming years. This is also pushing more spending toward chips, which provide the most fundamental core level of support for AI.
The question remains as to how quickly AI will realistically permeate throughout the entire tech stack, sparking widespread need for AI-enabled infrastructure across the enterprise. The inflection point hasn't yet occurred, but it could come as soon as the latter half of this year.
2024's Tech Winners
After a tumultuous few years tech spending will return to pre-pandemic levels, with infrastructure software providers seeing the most spend. While AI will continue to dominate the headlines and make a significant impact across the overall business landscape, the true tech winners in 2024 will be the infrastructure providers that provide security and reliability against ever-growing capacity needs.
About the author:
Ted Grossman is a principal in Alexander Group's San Francisco office. He is a leader of the Technology practice, with over 25 years of experience spanning both management consulting and industry line management primarily in the high tech and software vertical. He is also responsible for business development, management of key accounts, and major consulting engagements. Ted has extensive experience in the areas of business strategy, business process re-engineering and organizational structure and design with a functional specialty in sales force and channel effectiveness.
