Tech spending intent momentum slows amid policy volatility – Tech Demand Indicator highlights from Q2 2025

Introduction

US businesses and consumers expressed a significant decline in their intention to spend on technology during the second quarter of 2025, a major momentum shift after three consecutive quarterly improvements and an overall positive trajectory that dates to early 2023, according to 451 Research's US Tech Demand Indicator, a survey-backed composite of intent to spend on technology.

The Q2 2025 Tech Demand Indicator score was 51.9, indicating a slightly positive sentiment (a score greater than 50). However, this result is a notable decline from the Q1 number of 55.1. The Q2 result falls outside the lower limit of the extended projection published in Q1 (52.8). The downward turn was expected, as businesses react to the uncertainty surrounding US tariffs and broader trade policy by tightening their belts or delaying planned spending, as illustrated by the new high in the proportion of companies citing the influence of economic conditions on tech spending. Detailed signals of intent among US businesses suggest spending may concentrate within a smaller group of key technologies.

Tech Demand Indicator results gathered during Q3 of 2025 will be published in October 2025

The Take

The effect of emerging and evolving US policy (especially trade policy) on the technology business is significant. Its impact is reflected in stock market volatility, technology company revenue performance and a variety of other signals. One such signal is the intention of businesses and consumers to spend on technology, as measured by the Tech Demand Indicator. Spending intent is partly a response to economic pressures, including trade policies.

However, intent to spend is more of an abstraction than other market-based metrics. It is an attitude-based estimate. Additionally, intent to spend on technology is not necessarily an expression of enthusiasm for that spending, or excitement about its target. Some portion of technology spending (particularly among businesses) reflects operational necessity, and in these cases, intent is an expression of need. The need-driven component is a major factor in tech spending's resilience, which is reflected in the fact that a strongly negative reaction to economic pressures can mean both a negative directional shift and a still-positive overall measure of spending intent.

Tech Demand Indicator interactive data visualization

The Tech Demand Indicator is a set of signals that includes composite top-line measures of spending intent, as well as segmented views (by business size or vertical, consumer age, etc.), targeted measures of intent (by specific technology) and influencing factors, along with comparable measures of technology business performance based on S&P Global Inc.'s market indexes.

The Tech Demand Indicator's interactive dashboard provides a concise view of the full picture of US technology spending intent and allows users to customize that view to suit their specific interests and requirements.

IT earnings at risk with tech-demand score below projections

The top-line US Tech Demand Indicator score dropped, as expected, below the projected range for Q2 2025 as US government policy volatility raised concerns that caused the highest quarter-over-quarter decline in spending intent since Q2 2022.

The score dropped 6% to 51.9 in Q2 2025 from a strong 55.11 in Q1. The Q2 score, while positive, was well below the primary projected range of 55.0 to 59.5 and short of the extended projected range from 52.1 and 61.7, highlighting the extraordinary impact of tariffs and other policy volatility on organizational spending. Notably, the demand score is still slightly higher (1%) than the year-ago quarter and average score for the prior three years (by 2%).

Figure 1: US technology spending intent through Q2 2025

The decline echoes a similar pattern in Q2 2022, which saw the Tech Demand Indicator score drop 12% following the first in a series of interest rate hikes by the US Federal Reserve. Three years later, tech buyers and vendors are bracing for another period of economic challenge driven by trade tensions.

Given the sharp decline in demand for Q2 2025, we believe that it will be difficult for the companies in the S&P 500 Information Technology (Sector) Index to sustain their double-digit year-over-year revenue growth for the quarter ending June 30, with the impact beginning to reflect materially in earnings.

Although 451 Research's Tech Demand Indicator is a measure of demand for IT products and services, we have seen a strong correlation with the aggregate performance of companies in the index. The Q1 revenue growth for the index stood at nearly 13%, validating our expectation of "double-digit" growth in the quarter. However, in Q2, which will be the first full quarter to see the effect of the current administration's tariffs, there is a strong likelihood that the four-quarter streak of double-digit revenue growth is over, and organizations are at risk of missing their revenue targets for the quarter.

In our previous report, we noted that the "surging pace of demand could slow under the current conditions" and "the Q2 Tech Demand Indicator results could fall toward the bottom of, or even below, the projected range."

The impact on tech demand noted during Q2 — and the related change in IT spending among organizations — is still in anticipation of the full impact of tariffs, which will become more apparent in the coming months. That full impact remains unclear, as the US administration has adjusted its stance on tariffs on several occasions since first announcing plans in April. For now, organizations are restricting spending as they employ a wait-and-see approach.

"[Given current US economics and politics] ... the only thing we're really seeing is an uptick in prices of getting our PCs and our IT equipment. … I'm sure we will, over time, start to see more and more and more things start to hit us and ... affect us."

– IT/Engineering/Manager/Staff, Manufacturing, SME (100-250 employees).

Decline in spending intent aligns with intensifying economic pressures

The second quarter of 2025 saw the influence of external economic pressures on technology spending decisions grow to the strongest yet measured (since we began collecting this information in 2023). During the quarter, 58% of businesses surveyed reported that external economic conditions were having an outsized influence on their decisions about spending on technology.

Economic conditions have historically been the most-cited influence in every quarter tracked, typically cited by a slim majority in the range from 50% to 52%. The notable jump of 6 percentage points from Q1 results is tied to the trade and tariff policy actions taken by the US administration during Q2 and the sense of uncertainty around their ultimate impact on business. While the discussion of tariffs began earlier in the year, the largest announcements (and the global reaction) began in April.

We view the significant quarter-to-quarter decline in the top-line Tech Demand Indicator score as a direct consequence of these economic pressures (among other factors) and their increased influence on spending. The size of these pressures (and the accompanying uncertainty) and the speed with which they arrived account for the uncommon deviation of the top-line demand score from the previous quarter's projected range.

Other influences on spending intent were mostly consistent in the frequency with which they were cited from quarter to quarter, apart from moderate declines in the pace of innovation (cited 3.1 percentage points less frequently) and customer demand (a 3.7-point decline) as outsized influences. Government policy and regulation remained in the elevated position it assumed in Q1 via a 6.1-point quarter-to-quarter increase from Q4. It increased by 2 percentage points in Q2 to be cited by approximately 33% of respondents — up significantly from Q3 2023, when it was cited by less than 20%.

Tariffs or not, fear may continue to undermine IT demand in Q3

As things stand, new tariffs are set to go into effect in the third quarter. Their full impact will become clearer toward the end of 2025. Organizations are already prioritizing cost cuts in response to existing policy volatility.

For the third quarter, the projected Tech Demand Indicator score is projected to be in the range of 47.8 to 52.5, with the mean estimated demand outlook of 50.2. While the projected mean score is nearly neutral (roughly 50), the lower range of 47.8 indicates a likelihood of a negative sentiment score in the third quarter.

While the impact of any policy can be unequal across industries, given the IT sector's exposure to core policies like tariffs, outsourcing and immigration, we expect a high impact on the industry. Organizations are expected to remain conservative in IT spending until there is greater clarity. Spending will be subject to greater scrutiny, and subscription-based services will have to be careful about increasing prices.

"[Projects can get funded] potentially, but we need to be able to justify them with a measured ROI, which frankly, you should do with any project. But the scrutiny is much more intense now."

– Senior Management, Computer Hardware & Networking company, large enterprise (2,000-4,9000 employees).

Pre-tariff inventories may ease blow for some, temporarily

Multiple postponements in the application of tariffs have provided many organizations with a window in which to build pre-tariff inventories that may cushion the blow when they come into effect. Among businesses, technology spending intent scores dropped to 51.88 from 55.62, a 7% drop quarter over quarter, but still a 3% improvement over the year-ago quarter. Both SMEs (51.89) and large enterprises (52.33) reported positive demand despite a quarterly drop in sentiment. While tech demand scores among manufacturing, software/IT services and business services were positive (>50), all industries experienced a quarterly drop in the intent to spend.

Large enterprises are likely building a pre-tariff inventory that may prop up spending in the short term, especially in sectors with long lead times (such as semiconductors and datacenters). But these buffers are likely to deplete over time, intensifying cost pressures by early 2026.

On the other hand, smaller organizations aren't positioned to build such inventories and are likely to experience the impact more immediately after the tariffs come into effect. Either way, US organizations will have to face uncertainty until the supply chain adapts to meet the new reality of global trade.

After two consecutive quarters of subpar results, consumer tech spending improved to 50.35 in Q2 from 48.40 a quarter ago, reinforcing our understanding that the real impact of the tariffs will become visible a few weeks after the tariffs come into effect. Much of the disruption is from fear and anticipation. Having said that, consumer spending intent on technology remains underwhelming amid high inflation.

Spending intent appears to concentrate on a set of critical technologies

Technology-specific signals of intent captured during Q2 frame the decline in overall tech spending intent as a potential concentration of spending on certain critical technologies (security, cloud computing and AI) as organizations tighten budgets and set out to weather a period of economic uncertainty.

Although intention expressed toward individual technologies frequently demonstrates more positivity overall than the top-line Tech Demand Indicator result, the number of individual technologies falling in the positive intention range declined from 13 to 8 between the Q1 and Q2 results.

Figure 2: Technology-specific tech demand score, quarterly change

This may demonstrate reductions in discretionary spending or delays in investing in certain technologies, while other areas of current spending represent more consistent operational requirements or critical short-term objectives and are therefore more resilient. Intention to spend on information security, cloud infrastructure and AI technology saw minimal declines (or modest, in the case of cloud) and remained consistent as the strongest targets for spending intent, seeing scores higher than 60.

The relative ranking of the various technologies measured did not change significantly; however, the strength of the score declined in almost every case. There is some cyclical consistency to this decline (Q2 typically shows softer intent than Q1), but this decline is more pronounced than can be explained by the cyclical trend, and is compounded by market conditions, bringing it in line with the decline in overall intent.

Amid those declines, emerging technologies experienced the strongest single drop in spending intent. This broad term generally refers to technologies in the experimental or testing phases, which are not yet necessarily capable of producing a return on investment for businesses. This type of investment is a clear candidate for reduction or deferment for many organizations.

Another significant decline in intent was toward customer experience technology. Here, the devil will be in the details. We have been witnessing a continued trend toward the consolidation of contracts for CX technology: 55% of businesses are reevaluating existing contracts or relationships with CX technology vendors to reduce costs, representing more than a 20-point increase in this metric in two years. Consolidation continues as organizations revisit requirements. CX buyers will be investing in technology to support the use of GenAI and AI agents, such as new applications, cloud infrastructure and data platforms, which may see investments that ultimately benefit CX flagged as other categories of tech spending in our results. Businesses are also looking to upgrade existing deployments across the entire CX stack.

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