Morgan Stanley's second-quarter 2026 CIO survey found a modest uptick in IT budget growth expectations, with CIOs forecasting a 3.8% increase in IT spending for 2026, up from 3.7% in 2025. The survey was fielded between May 8 and June 8 and reflects a 14 basis point year-over-year improvement, though the projected growth still sits below the 2010-2019 average of 4.1%.
Within technology sectors, software is projected to be the fastest-growing category, where CIOs expect 4.1% growth in 2026, a 29 basis point acceleration versus 2025. By contrast, the Communications, Hardware and Services segments are all forecast to see decelerating growth.
Morgan Stanley highlighted a shift in the balance of potential budget revisions. The one-year up-to-down ratio for possible IT budget changes improved to 1.2x from 0.8x in the first quarter, marking the first reading above 1.0x since the first quarter of 2024. The firm framed that improvement as an indicator of a somewhat healthier revision outlook among CIOs.
On priorities, CIOs continue to place AI and machine learning at the top of their agenda, with 18.0% citing AI/ML as a leading focus. Security software ranks next at 11.3%, followed by digital transformation at 10.0%. Morgan Stanley noted, however, that AI/ML's net defensibility measure declined to 4% from 10% quarter-over-quarter, a change the bank said suggests CIOs are becoming more selective about which AI projects they view as defensible.
When assessing where incremental GenAI and automation dollars are likely to flow, Morgan Stanley identified Microsoft as the most apparent public beneficiary. The bank said Microsoft screens clearly across three axes: incremental GenAI spend, agentic automation and enterprise distribution. After Microsoft, the next tiers of potential public beneficiaries include large language model providers, followed by Amazon, Salesforce and Google.
At the category level, the bank singled out security as the cleanest winner. Morgan Stanley cited security software's combination of priority ranking, defensibility and an accelerating spend outlook, positioning the category as particularly advantaged in the current CIO spending environment.
Contextual notes
The survey results convey a cautious improvement in CIO sentiment about IT budgets heading into 2026, with a concentrated set of technology names and categories positioned to capture the bulk of incremental investment. The findings highlight software and security as relative beneficiaries, while Communications, Hardware and Services face slower expected growth.