What is the macro/tariff impact on IT spend

Investing.com -- The macroeconomic and tariff landscape is exerting growing pressure on IT spending, though the immediate effects remain uneven across sectors, according to an analysis by UBS Global Research. 

Over the past five weeks, software stocks have seen a significant sell-off, down approximately 12%, as investors brace for potential slowdowns in enterprise IT budgets. 

The concern stems from broader economic headwinds and tariff uncertainties, which are prompting companies to reassess their technology expenditures.

Discussions with enterprise IT executives indicate that while IT budgets are under scrutiny, direct spending cuts have been limited so far. 

Among the firms surveyed, only one—an enterprise CIO from a consumer hotel provider—has explicitly deferred IT projects into the second half of the year. 

For more enterprise-focused firms, spending decisions tend to take longer to adjust in response to macroeconomic changes. 

However, there is a growing trend of increased scrutiny on IT investments. One major system integrator noted that clients are becoming more cautious about budget allocations, reflecting broader concerns about economic stability.

A key dynamic at play is not just a reaction to tariffs or economic uncertainty but also the shifting priorities within IT budgets. 

Companies are reallocating funds toward artificial intelligence, data science, cybersecurity, and cloud migration, leading to a "crowding out" effect that is limiting spend in other areas. 

Tougher economic conditions, particularly in the auto and retail insurance sectors, have also compounded the pressure on IT budgets, independent of the recent macroeconomic developments.

In terms of specific areas being cut or deferred, enterprises are finding ways to reduce software licensing costs, delaying internal HR and ERP upgrades, and reconsidering cloud migration strategies—though some companies are actually accelerating their move to the cloud to achieve cost efficiencies. 

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There is also a shift toward optimizing cloud infrastructure spend, with companies looking for ways to extract more value from their existing AWS and Azure investments. 

Spending on on-premise hardware is being reduced, with companies choosing to extend the lifecycle of their existing assets rather than making new purchases.

Investor sentiment remains defensive, with many unwilling to take on risk until first-quarter earnings reports provide more clarity. 

While the 12% decline in software stocks suggests that some of these risks have been priced in, no major software firms have openly acknowledged a demand impact yet, apart from some delays in federal government deals. 

The consensus among investors is that companies tied to more durable end markets—such as cybersecurity and AI—may be better positioned to weather the uncertainty.

Despite the uncertainty, UBS analysts suggest that the sector’s outlook remains mixed. Some investors are adopting a cautious approach, waiting for further signs of weakness before making investment decisions. 

Others are looking for companies with strong valuation support or exposure to resilient segments like AI and cloud computing. Stocks such as Oracle (NYSE:ORCL), CyberArk, and Braze (NASDAQ:BRZE) continue to attract interest due to their positioning in these areas.

While the immediate macroeconomic and tariff effects on IT spending remain limited, the broader environment is fostering a shift in corporate technology investment strategies. 

The trend toward prioritizing AI and cloud-related initiatives at the expense of traditional IT infrastructure suggests that software firms may need to adapt their offerings to align with evolving customer needs.

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The coming months will be critical in determining whether IT budgets tighten further or if enterprises continue to push forward with strategic investments despite the economic backdrop.

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