Investing.com -- IT decision makers have sharply reduced their growth expectations for both IT services and hardware spending in recent weeks, according to Morgan Stanley’s latest CIO survey.
The 1Q25 survey shows a notable deterioration in sentiment after February 20. CIOs polled between February 10 and 20 projected 2025 IT services growth at 3.0% year-over-year, up from 2.8% in the prior quarter.
But among those surveyed between February 21 and March 10, expectations dropped to 2.2%, marking a 59-basis-point deceleration from the previous quarter.
A similar pattern emerged in hardware spending. CIOs surveyed before February 20 anticipated hardware budgets would rise 2.2% in 2025—a meaningful acceleration from 1.6% in 2024.
On the other hand, those surveyed after that date slashed their expectations to just 0.7%, representing a 90-basis-point year-over-year deceleration and the slowest growth outlook since the fourth quarter of 2020.
“What this tells us is that the cyclical recovery we had been tracking for 2025 was accelerating through mid-to-end of February, before policy volatility and macro uncertainty caused CIOs to pause,” Morgan Stanley (NYSE:MS) analysts led by Erik W. Woodring said in a note.
They caution that it remains unclear whether the shift is a temporary scare or the beginning of a more prolonged downturn.
For IT services, the weakened expectations were consistent with Morgan Stanley’s recent estimate cuts for Cognizant (NASDAQ:CTSH), and followed cautious commentary from Accenture's (NYSE:ACN) earnings call, which flagged growing uncertainty and uneven bookings activity in early March.
In hardware, almost every category was seen as vulnerable to budget cuts if macro conditions worsen.
In contrast, projects tied to AI, machine learning, cloud computing, and digital transformation remained high priorities across the survey sample.
This, according to the analysts, suggests that hardware companies exposed to AI and cloud computing, such as Dell (NYSE:DELL), IBM (NYSE:IBM), Seagate Technology PLC (NASDAQ:STX), and Teradata (NYSE:TDC), “likely face more sustainable tailwinds through this period of uncertainty.”
In conclusion, analysts argue that their latest survey is the first clear indication that macro uncertainty is weighing on 2025 hardware spending plans.
They note that additional data and policy developments will be necessary to determine whether this shift is temporary or the start of a broader downturn.
Despite recent multiple compression in hardware stocks—now trading at a median price-to-earnings (P/E) of 14.7x—analysts warn of further downside risk, particularly given past trough valuations.
Using their ‘Cyclicality Scorecard,’ the analysts identified GoPro Inc (NASDAQ:GPRO), Seagate, and Sonos Inc (NASDAQ:SONO) as most vulnerable in a downturn, while Teradata, CDW (NASDAQ:CDW), and Ingram Micro Holding Ltd (NYSE:INGM) appeared most insulated.
Apple Inc (NASDAQ:AAPL), Dell, and IBM also ranked highly on fundamentals, though they screen as more expensive on valuation.
This content was originally published on Investing.com
