Per the latest report by Gartner Inc. (IT - Free Report) , worldwide IT spending is projected to witness record growth this year. Notably, this will also mark the highest growth in a decade.
Per the information technology research and advisory firm, global spending will reach $3.74 trillion in 2018, representing a 6.2% increase from the $3.52 billion recorded last year. According to John-David Lovelock, research vice president at Gartner, a declining U.S. dollar is the key reason behind this stellar growth projection.
Following two consecutive years of decline, the latest improvement will indicate year-over-year growth in IT spending for the second time. Notably, in 2015 and 2016, worldwide spending had shrunk 5.5% and 0.6%, respectively. Moreover, if this happens, overall IT spending will cross the previous highest mark of $3.71 trillion attained in 2014.
Per the research firm’s predictions, the turnaround in global IT spending, which started last year, is here to stay, at least, till the next year. Gartner forecasts this spending to reach $3.85 trillion in 2019, representing year-over-year growth of 2.8% from the current-year predicted level.
The research firm predicts the U.S. dollar to experience tremendous volatility this year as well as next year “due to the uncertain political environment, the North American Free Trade Agreement renegotiation and the potential for trade wars."
Computer and Technology Sector 5YR % Return
Software, Devices & Services to Lead
Per Gartner’s report, each IT segment will witness rise in spending, however majority of growth will be recorded in the Enterprise Software, Devices and IT Services segments.
The Enterprise Software segment continues to lead in respect of growth. The segment is expected to witness an 11.1% rise this year, after registering an increase of 8.8% in 2017, and eventually reach $391 billion. Per the research report, in 2018, organizations will be allocating more budgets toward digitalization and infrastructure build-up in line with the firms’ modernization initiatives.
This is followed by the IT Services segment which is predicted to be up 7.4% and reach $1 trillion in 2018.
Next in line to witness the highest growth is the Devices segment, which is estimated to be up 6.6% and reach $706 billion. This upswing is anticipated to be chiefly driven by rise in average selling price. However, according to Lovelock, “Total end-user spending and unit shipments are expected to be lower compared with previous forecasts, as demand for ultramobile premium devices, ultramobile utility devices and basic phones is expected to be slow."
Spending on Communication Services is likely to flare up 4.3% this year and reach $1.45 trillion.
Nevertheless, spending across the Data-Center Systems segment is expected to decelerate. The segment’s spending is anticipated to increase 3.7% in 2018 as compared with last year’s growth rate of 6.3%. Gartner believes the segment will be affected by component shortages like memory and CPUs. In dollar terms, spending in this segment will reach $188 billion.
In 2019, the Enterprise Software segment will continue to lead with 8.4% estimated growth, while the IT Services, Devices, Communication Services and Data-Center Systems segments will witness respective increase of 4.6%, 1.3%, 1.1% and 1.1% in spending.
Tax Reform & AI to Play Key Roles
The latest trends, like cloud-based platforms, AI tools, Augmented/Virtual (AR/VR) reality devices, autonomous cars, advanced driver assisted systems (ADAS), as well IoT-related software and hardware, have been driving overall IT spending.
Furthermore, we believe spending will be spurred by the U.S. Tax Reform as well. As companies across other sectors might utilize savings from lower tax as well as cash repatriations for technological up-gradation, this will again boost IT spending.
Gartner, in its January 2018 report, noted that AI will be the main driving force of overall IT spending and projected that technology will create approximately $2.9 trillion in new business value opportunity by 2021. Notably, Lovelock had stated, "Business value is attributable to using AI to, for example, drive efficiency gains, create insights that personalize the customer experience, entice engagement and commerce, and aid in expanding revenue-generating opportunities as part of new business models driven by the insights from data."
Therefore, it is wise to shift your focus on pure-play AI companies as these firms are anticipated to benefit the most from the uptick in IT spending. Companies like NVIDIA (NVDA - Free Report) , Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , Amazon (AMZN - Free Report) and Alphabet (GOOGL - Free Report) are among the front-runners in this space.
Currently, Amazon flaunts a Zacks Rank #1 (Strong Buy), while Alphabet carries a Zacks Rank #2 (Buy). NVIDIA, Apple and Microsoft carry a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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