AI closing in on information security as top enterprise spending category

Artificial intelligence technologies have continued to grow as a spending category for enterprises, equaling cloud infrastructure and closing in on information security, both of which have seen notable declines in spending intent, according to S&P Global Market Intelligence 451 Research's latest Tech Demand Indicator (TDI).

The TDI for the second quarter came in at 51.6, down slightly from the first quarter though still in positive territory. A value above 50 indicates expansion. The TDI is a survey-backed composite of US intent to spend on technology and typically predicts revenue performance for tech vendors by up to a few months.

The narrowly positive score indicates spending is set to continue to grow but at a smaller rate. In terms of where that spending is set to occur, AI has taken a growing share of enterprises' overall tech budgets. AI spending intent has increased for the third quarter in a row. Meanwhile, information security and cloud infrastructure have declined for two consecutive quarters. Information security remains the top spending category among enterprises.

"While the expectation is that spending on technology overall will grow slightly, spending on AI will grow significantly," said Liam Eagle, a research director at 451 Research and the report's author. Eagle said for many organizations, AI spending starts from zero.

AI technologies include generative AI chatbots, tools for designing and testing large language models, API access to existing models, and tools for facial recognition, among others.

Businesses are seen balancing the need to save amid a perceived uncertain economic environment with investments in new technologies like AI. According to the report, external economic conditions still exert the greatest influence on tech spending intent, but the pace of technology advancement has been gaining in importance for tech spending decisions.

The number of S&P 500 Index companies mentioning AI in their earnings calls reached a record in the second quarter of this year, according to S&P Global Market Intelligence.

The strong demand for AI technologies has prompted investors to invest heavily in artificial intelligence companies in the past year. Analysis by S&P Global Market Intelligence reveals that the stock price performance of publicly-listed IT stocks this year has predominantly been driven by AI demand. In venture capital, leading firms have allocated a larger portion of their capital to AI companies, despite overall activity remaining somewhat subdued. Consequently, valuations of AI companies have soared, particularly in the picks and shovels space, with chipmakers like NVIDIA Corp. and Broadcom Inc. surging.

451 Research is a technology research group within S&P Global Market Intelligence.