2025 IT Services growth likely to be consistent with 2024 levels: Morgan Stanley

Investing.com -- Morgan Stanley recently conducted its CIO survey, providing insights into IT services growth expectations for 2025.

The bank said in a note Thursday that the survey predicts a stable outlook consistent with 2024 levels.

The survey projects a 2.7% year-over-year (YoY) growth in IT services budgets for 2025, slightly above the 2.6% expected for 2024 but still below the pre-pandemic average of 3.9%.

Despite global economic challenges, the IT services sector is said to remain steady, with some industries showing stronger growth expectations.

According to Morgan Stanley, growth expectations for 2025 show minor improvement, with a +11bps increase to 2.7% YoY from the expected 2.6% in 2024.

"CY25 IT Services budget growth of +2.7% y/y is broadly in line with 2024 growth expectations, with slight uptick driven by improving spend intentions in the EU," said the bank.

The improved spending intentions in Europe were said to be in sectors like business services, energy, healthcare, and retail.

Meanwhile, other sectors, such as technology, financial services, and manufacturing, may see downward revisions.

Morgan Stanley revealed the European market showed unexpected resilience, contributing to the overall growth outlook, despite continued macroeconomic challenges, especially in the automotive and aerospace industries.

On the other hand, U.S. IT budgets are expected to remain stable with no significant acceleration.

The bank added that discounting has also become more prevalent in the sector. 44% of CIOs reported increased vendor discounting in Q3 2024, up from 37% in Q2 2024.

They explain that the trend suggests that vendors are offering competitive pricing to reclaim market share and attract new clients in a difficult spending environment.

Morgan Stanley also highlighted that enterprise adoption of generative AI remains in its early stages, with 48% of respondents expecting Gen AI projects to be production-ready by 2H 2025.

"We believe clients are prioritizing projects that support overall Gen AI readiness such as those related to data governance, which has encouraged clients to push out Gen AI deployments into the back-half of 2025," said the bank.

Source: Investing.com