With the start of the March quarter tech earnings season just days away, there are growing signs of trouble on the IT spending front, which could mean earnings misses, soft outlooks, and trouble for stock prices.
IBM
(ticker: IBM) and SAP (SAP) will provide the first fresh look at IT spending when they report financial results later this week, with further important clues to follow next week from
Microsoft
(MSFT),
Alphabet
(GOOGL),
ServiceNow
(NOW), and
Amazon.com
(AMZN).
On Monday, both
Citi
and
Goldman Sachs
released the results of IT spending surveys, and they reached nearly identical conclusions: Things are slowing down.
That finding is consistent with a letter that Amazon CEO Andy Jassy wrote last week to the company’s shareholders warning the company’s Amazon Web Services cloud business “faces short-term headwinds right now as companies are being more cautious in spending given the challenging, current macroeconomic conditions.”
Citi analyst Tyler Radke writes in a research note that his survey of 100 CIOs finds that “IT budgets remain pressured in 2023, led by weaker spending in the U.S.” He says that survey respondents on average see 1.6% IT spending growth over the next 12 months, down from the 1.7% level projected in the same survey in December. That is the lowest reading since the middle of pandemic in 2020, and the sixth straight monthly decline, after peaking at 5.4% in September 2021.
Radke writes that cybersecurity is the top investment priority for IT buyers, followed by data analytics and digital transformation projects.
“While the survey results show that global IT demand has not rolled over, the further deterioration in US budgets is an area of potential concern heading into Q1 reporting,” Radke writes.
Goldman’s survey found similarly that spending expectations are weakening, with a particular decline in capital spending plans. Goldman, which uses a 0 to 100 index to measure spending intentions, says the overall IT spending index has declined to 60.5 from 76 in June 2022, with the IT capital spending down to 50.5 from 69 in June 2022. (A reading of 50 implies zero growth.)
“The latest results are consistent with the cautious tone that many of our companies have been highlighting,” Goldman analyst Kash Rangan wrote in a research note about the survey.
Like Citi, Goldman found that security remains the top spending priority, followed by software-as-a-service applications, business intelligence and analytics, public cloud, and cloud-based financial applications. Goldman found that 31% of all workloads are now running in public clouds—like those from Amazon, Microsoft and Google—up from 24% last June. The survey group said they expect 51% of workloads to eventually shift to the cloud.
Write to Eric J. Savitz at eric.savitz@barrons.com
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