A Morgan Stanley survey of chief information officers indicates a modestly improved trajectory for technology budgets in 2026, though the overall pattern is uneven across spending categories and regions.
Analyst Keith Weiss, reporting on the survey results, stated that CIOs expect aggregate IT spending growth to tick up slightly from 3.6% in 2025 to 3.7% in 2026. The marginal gain masks divergent trends beneath the headline number: software is the primary driver of the improvement, while hardware, communications and services are all projected to slow on a year-on-year basis.
Detailing category-level expectations, the survey projects software budgets to expand by 4.1% in 2026, compared with hardware budgets, which are seen growing just 1.5% for the year. That split underpins Weiss's characterization of budget patterns as increasingly K-shaped - with pockets of stronger investment contrasting with areas of weaker demand.
Geographic differences are also notable. U.S. CIOs raised their 2026 IT spending outlook to 3.9%, outperforming the E.U., where expectations sit at 3.0%. The U.S. projection was revised up by 34 basis points versus the prior quarter, while European CIOs trimmed their view by 5 basis points, widening the divergence between the two regions.
Sentiment measures signaled a mixed picture. The one-year up-to-down ratio - a measure comparing the number of CIOs expecting budget increases to those anticipating decreases - improved to 0.8x from 0.5x in the fourth quarter of 2025, yet still reflects a cautious stance overall. According to the survey, 30% of respondents foresee budget declines, while 24% expect increases.
Artificial intelligence and machine learning have climbed further up CIO priority lists. AI/ML was cited by 17.7% of respondents as a top priority, well ahead of security, which was identified by 10.7% of respondents as the second-ranked priority. Within the AI wallet, hyperscale cloud providers are emerging as early beneficiaries: Microsoft and Amazon were ranked as the top two recipients of incremental IT budget share on both one- and three-year horizons.
Overall, the survey portrays a technology spending outlook that is only slightly brighter in aggregate for 2026 but more uneven across categories and regions, with software and AI-related investments concentrated as the primary areas of strength.