IT Industry Outlook 2024: Year of bounce back with GenAI at center stage

As we approach the year end, the outlook for 2024 is in everyone’s mind. The year 2023 has been a hard year for many technology companies witnessing significant decline in business amid global economic uncertainty, inflation, geopolitical environment, wars, and disruption of supply chain. It was a hard year for the global IT industry players. ?When the macro environments are tough, such things are expected to happen. Many people were anticipating recessions during the year 2023. Luckily our financial systems are robust, thanks to the monetary policies of different countries that saved the global economy from financial disasters.

The year 2024 is expected to be a bit better than the previous year in many parameters. ?Let’s examine why! The world GDP projected growth for 2024 is expected to be in the range of 2.5% to 3% (latest forecasts for 2024: Bloomberg=2.1%, Goldman Sachs=2.6%, IMF=2.9%). Although we are entering the year 2024 with pretty much similar macro conditions as of 2023, however there is a significant difference now. During 2023, many global countries were forced to slow down the economic activities by federal and central government to tame the surging inflation resulting in slowdown of global economy. The fear of recession, the war between Russia and Ukraine and disruption of supply chain has further weakened the global economy and created negative sentiments across during 2023.

The inflation situations are much better globally now compared to the last 12 months, the economic activities are gradually picking up, consumer confidence is stable and the overall global sentiments for 2024 are largely neutral to positive. These will act as a catalyst for growth for 2024 and the global economy is likely to partially bounce back because of ease in economy, monetary policies, controlled inflation, and robust financial systems.

The overall global economic situation, although challenging today, is expected to be largely modest during the year 2024.

IT Spending is Expected to witness double digit growth During 2024 in major markets.

The mixed sentiments and economic impulses are bound to give a boost to the IT industry during 2024. The lull period of 2023 is expected to bounce back for tech industry during 2024. This may sound counter-intuitive or irrational to a few, but when every industry sector is striving for growth and putting its best efforts forward to grow (after sluggishness of about 15 months), the IT industry is bound to reap its benefits. ?One cannot think of successful business without the applicability of the right technologies.

The macro environment of 2023 forced companies to cut down the tech spend and put breaks on discretionary spending. However, there are no choices left now for companies but to open discretionary spending, either to grow or to automate or to consolidate business, and in the worst case outsource the business. This will push the IT spending trends globally.

According to the latest forecast by Gartner, Worldwide IT spending is projected to total $5.1 trillion in 2024, an increase of 8% from 2023. Similar numbers are predicted by IDC which says, spending on digital technology by organizations will grow seven times faster than the overall economy in 2024.

It is very likely that IT spending will be in double digits in major markets globally. ?The hot topic of 2024 is again going to be GenAI (Generative AI). The experimentation phase of 2023 on GenAI technology has progressively moved this technology to the center stage with many companies ready to allocate sufficient budgets to adopt and expand GenAI and AI capabilities within enterprises. GenAI adoption is likely to reach its peak during the year 2024 and 2025. The embedded GenAI theme is likely to touch the platforms, core systems, processes, and peripheral interfaces during the year 2024.

Top 5 IT Focus areas for 2024

IT trends are largely predictable for the year 2024. The top focus areas for technology industries are primarily would be around.

1. AI and Generative AI: Generative AI and AI will witness the best synergy during 2024. Many companies are likely to align their business processes to leveraging AI and GenAI to drive automation, productivity, and growth. The automation theme along with embedding Generative AI and AI as part of core business processes are likely to become an integral theme for many companies. The good news is GenAI and AI funding will not witness any resistance by senior executives during 2024. The news and stories around GenAI are likely to be the topic of discussion in almost every boardroom.
2. ?Cloud Engineering & Migrations: Cloud engineering and migration to cloud is expected to gain maximum traction during 2024. Some of it would be driven due to the AI push and cloud providers offerings integrated, out of the box AI and GenAI services. Another reason pushing cloud engineering and migration usages are likely to be around driving efficiencies, cost optimization and alignment to core modernization themes of companies
3. ?Platform Engineering & modernization: Platform engineering and modernization has always been an evergreen theme for the IT industry over the past three decades and likely to be silent topic for 2024 as well that will be in motion without any hype. The maximum IT budget allocation (including the infrastructure cost) is likely to be in this space. Core systems and platforms are likely to change to embed the AI and Gen AI along with the modernization themes. The year 2024, would expect embedding AI and GenAI as built in enabler into platforms and engineering side of business. The platform development, modernization and expansion for Generative AI are likely to be the core themes for the year 2024.
4. ?Cybersecurity: Cyber security is gaining attention since the emergence of cloud era. It is critical for running the business. Cybersecurity will continue to be a focus area for the technology industry for the next few years including during 2024. This is likely to become an integral and implied part of technology focus areas in the upcoming years. AI and GenAI push induced potential cyber risks are likely to keep the CISO busy to develop new security and AI policies for the organization to keep alignment with security and privacy standards and ongoing changes in the GenAI space.
5. ?Data Platforms and AI infrastructures: The attention areas for CIOs for 2024 are likely to be building, expanding, and scaling data platforms and AI infrastructure (including cloud) to cater to the exploding buzz of Generative AI and AI. The data integration, data quality and data architecture will gain further attention during 2024 to align and encompass to the Generative AI theme. Data platforms and AI infrastructure are largely viewed as enabling initiatives to support the cloud, AI, analytics and GenAI and platform themes of companies and often remain in lower lime lights but are integral for every company that is focusing on Insights, AI and GenAI today.

?The allocation of budgets into each of the above categories would vary based on the technological maturity and business priorities of various organizations. Cloud, platform engineering and AI are likely to get a higher share of budgets. The data and AI platforms spend are likely to be part of the discretionary spend. Amid the economic uncertainties, companies will still be conservative while spending and every budget is likely to be viewed or treated as discretionary spend only during 2024.

Surge in GenAI startups and mega M&A activities likely in 2024

There is likely going to be surge in number of new startups coming in the GenAI space during 2024. While only a few would create a dent in the market, it is likely that the players offerings unique industry aligned GenAI solutions, model integrations, deployment services, and manpower services around GenAI are likely to stay float more than the others. The M&A and consolidations of established GenAI startups are unavoidable during 2024.

Overall, it is going to be a great year for startups operating in AI and GenAI space. One can expect a few mega M&A deals during 2024 in GenAI/AI space including new entrant venturing into GenAI space. The large players in GenAI space (such as Microsoft, Amazon, Salesforce, Meta, Google, Nvidia etc) are likely to offer integrated GenAI offerings (software/algorithms, chipset, hardware, infrastructure, and platforms) for dominating the markets and expanding into other areas.

With the very recent launch of Microsoft’s Azure Maia AI chip and Arm-powered Azure Cobalt CPU, Microsoft has already started the new market war within AI and GenAI towards AI chip manufacturing industry. ?Exciting times ahead for chip makers including Intel, TSM, Qualcomm, Nvidia, AMD, Samsung, and other chip manufacturers.

It is likely that a few large hardware and chip manufacturers will enter AI and GenAI space with their chip, hardware and GenAI offerings. The difference between software and hardware companies is expected to blur out over the next decade or so.

Skill shortage on AI/GenAI technologies is likely to continue for the next few years.

While every company will be focusing on scaling the GenAI and AI talent pool during 2024, there will still be significant gap in skill set. New roles and job titles are expected to emerge around GenAI. Many tech companies are likely to start reporting total number of GenAI trained people, Number of GenAI projects in execution and the investment plans of companies towards GenAI initiatives. This is likely to become a norm during the year 2024 and beyond. This move is likely to help in the positioning of companies and for market awareness.

It is likely that many GenAI are likely to be funded as part of the discretionary spend during the year 2024. Since the GenAI technology is new and just a year old, it is likely that vendors and suppliers operating in this space are likely to oversell or tell similar stories. A due diligence and reference check is going to help companies to ensure their projects do not suffer during execution. Many GenAI projects are also likely to fail or deliver sub-optimal results during the year 2024 due to skill shortage, evolving nature of GenAI technologies and uncertain vendor landscape. Overall, caution is needed not just in investment but also in execution of the GenAI projects during 2024.

Balancing Market volatility, technology hype, demand, and reality of GenAI requires caution.

The market conditions are still volatile, GenAI technology is still evolving, and companies are dealing with their own challenges for growth. The market movements and growth signals are likely to be witnessed only after Q2 of 2024. Companies must build strong foundations, strategies and operating models including new resources to get the market attention or be in the race. Q1 is going to be very crucial for most of the technology companies not only to sense the market signals and demand scenario but also to act quickly to lead the market. Focusing too much on GenAI or just alone on GenAI is also a foolish move as not every industry will adapt to it at same time and buyers are more cautious these days than sellers in every industry.

Tech players must balance the market volatility, technology hype, demand, and their core technology expertise appropriately. A balanced approach to technology focus areas (including Cloud, GenAI, Platforms, data etc) must be kept in mind while building technology strategy for 2024 alongside customer demands. Invest timely and aggressively in new technologies that are witnessing customer’s demand. Overall, 2024 requires more caution than 2023 for tech players as in theory nothing has changed at macro front apart from the sentiments.

Conclusion

In conclusion, the IT industry is poised for a rebound in 2024 after grappling with a challenging 2023 marked by economic uncertainties and geopolitical tensions. The global economy is showing some signs of stabilization, with controlled inflation and robust financial systems creating a conducive environment for growth. Projections indicate double-digit IT spending growth, with a spotlight on AI and Generative AI (GenAI) driving innovation and efficiency across sectors.

Despite the positive outlook, the industry faces challenges such as a persistent skill shortage in AI and GenAI technologies. The year ahead is expected to witness the emergence of new roles, but uncertainties in the vendor landscape may lead to setbacks in GenAI projects. Navigating market volatility, technology hype, and the reality of GenAI demands a cautious approach. Companies must strike a balance in their technology focus areas, investing wisely to meet customer demands. As Q1 plays a pivotal role in sensing market signals, tech players need to act swiftly, recognizing that caution is paramount in the dynamic landscape of 2024.

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