Forrester is forecasting that the emerging macroeconomic environment in 2023 will lead to US tech spend growth of only 5.4%. This is a drop from 7.4% growth in 2022. The US tech market is being impacted by somewhat different forces than the European tech market, but these forces are no less exigent. In December, the Federal Reserve Board hiked interest rates (for the seventh time in 2022) to 4.5% to further control inflation, increasing the cost of capital for businesses. The Federal Reserve Board now projects a tepid 0.5% increase in real GDP for 2023, with unemployment projected to increase from 3.7% in 2022 to 4.6% in 2022. This combination of factors means businesses are slowing spend.
For 2022–2027, Forrester forecasts that tech spend growth will be driven by:
- Software and cloud investment are the key drivers of growth. Software is forecasted to dominate growth, representing 34% of tech spend growth in 2022 and 42% of tech spend growth in 2027. Companies will move from an upfront capex spend to monthly opex subscriptions that allow users to only pay for used resources. Rising inflation has accelerated the shift from on-premises software to cloud computing services as companies look to control costs. Three-quarters of software is sold as a subscription or perpetual license, with software companies that generate revenues from this business model seeing rapid growth.
- IT services resulting from software and cloud investments will remain strong. The strength in software and cloud spend will further accelerate IT services spend as organizations tap providers to provider critical support to projects and operations. Accenture’s cloud business grew 48% in local currency in FY 2022. IBM’s annual hybrid cloud revenues grew 20% year-over-year at constant currency in Q3 2022. Cisco expects software and IT services to contribute to 53% of revenues in 2022, up from just 42% in 2017.
- The same industries continue to lead the pack with government showing surprising strength. Financial services, insurance, media and information, telecommunications, and professional services have historically seen faster tech spend growth — a phenomenon that is forecasted to continue in 2022 and 2023. JPMorgan plans to grow its technology investments by 30% in 2022, with more spend dedicated to data centers and JPMorgan Chase implementing enhanced threat monitoring to mitigate cyber security risks. Significant cloud opportunity exists for regulated industries like finance. The government, driven by the President’s budget for IT at civilian Federal agencies, will increase tech spending in 2022 by 11%.
In the longer term, enterprises will need to become more accountable for tech spend productivity. They will also need to treat tech workers as a critical resource as they will be in high demand for the next decade with the number of software developers, quality assurance analysts, and testers growing 25%. Industries will need to focus on attracting the best tech workers: the cyclical hiring and laying off of workers, such as the one observed in the oil and gas industry in 2020 that forced a 30% decline in tech spend, damages industry reputation and reduces the size of future tech talent pools. Tech talent also wants to choose how they work: most prefer hybrid work over a full return to the office or a full shift to remote working.
There are clear challenges for the US tech market — but there are also clear opportunities. To learn more and to see the numbers behind the United States’ forecasted $1.8 trillion tech spend in 2023, read Forrester’s new report, US Tech Market Forecast, 2022 To 2027. And keep an eye out later this week for Forrester’s forecast on global tech spend between 2022 and 2027.