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Investing.com -- CIOs are keeping IT spending growth expectations steady, but the latest Morgan Stanley (NYSE:MS) survey shows a more cautious tone heading into the second half of the year.
The bank’s 2Q25 CIO survey, based on responses from U.S. and European tech leaders, indicates IT budgets are expected to grow 3.6% in 2025, largely unchanged from prior quarters.
While the headline number signals resilience, the underlying sentiment has softened. The “1-year up-to-down ratio,” which tracks the balance of CIOs expecting to raise or cut budgets, fell to 0.7x, reinforcing a “downward revision bias on balance.”
Morgan Stanley notes that “22% of CIOs expect to revise budgets higher relative to 32% expecting to revise budgets lower throughout the year.”
The gap between enthusiasm for AI and actual budget expansion is also growing.
“Our survey still lacks indications of positive inflection in underlying IT budgets, despite ongoing prioritization of AI/ML and durability in intentions to launch GenAI-based workloads into production in the near-term,” analysts led by Keith Weiss wrote.
As such, the range of “AI Winners” likely remains narrow, with an increasing onus on AI spend shifting from proof-of-concept to full-scale deployments to impact broader tech budgets in the second half of the year, they added.
AI and machine learning (ML) remain the top CIO priority, though their net prioritization declined 130 basis points quarter-on-quarter.
Cloud Computing rose to the second spot on the CIO priority list with 10.3% of responses, gaining about 230 basis points from the previous quarter, while Security Software (ETR:SOWGn) slipped by 130 basis points but held steady as the third-highest priority.
Despite the moderation, Security remains the most defensible IT category, seen as least likely to face cuts if the macro backdrop worsens.
Across segments, Software is still expected to post the strongest growth at 3.6% in 2025 but saw the sharpest downgrade in expectations. IT Services (2.5%) and Communications (2.9%) also ticked lower. Hardware was the only sector to receive a slight upward revision.
Cloud migration remains a longer-term driver, with CIOs estimating 44% of application workloads are now running in public cloud environments—up from 40% a year ago. Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) remain top vendors expected to gain share from this shift, analysts said.
Microsoft continues to stand out as the key beneficiary of AI momentum.
“Our 2Q25 data continues to underpin the company’s leadership position in Generative AI, evidenced by clear leadership status among vendors in gaining incremental share of GenAI spending both in 2025 and over the next 3 years,” the team continued.
CIOs project 6.3% forward-year growth for the tech behemoth and rank it highest in expected share gains from GenAI investments. Microsoft 365 Copilot adoption is ramping, with 72% of CIOs expecting to use it in the next 12 months.