You're listening to Bloomberg BusinessWeek with Carol Messer and Tim Stenebek on Bloomberg Radio.
So Carol, well, pretty much through earning season and like last quarter one theme has been clear. It was clear today HEFN with Mango TB's results. Right, Companies of all stripes are embracing AI, and for good reason. Take Wall Street for example, Banks using generitive AI tools could boost their earnings by as much as three hundred and forty billion dollars annually through increased productivity. It's a nine to
fifteen percent increase in operating profits. That's according We should note to a McKinsey Global Institute report that was published today. We know they kind of want you to use AI. Kris, then you'll hire them consult me ya, you.
Can look back to ou AI. All right, We've got a great guest to give us an idea though, of where companies are going to be spending money when it comes to it in the new year. Crawfordal Prett back with us President the global market intelligence firm IDC International Data Corporation, also known as he joins us here in our Bloomberg Interactive Broker Studio at Bloomberg Headquarters. Hello, Hello, almost happy new year.
So great to see you guys, So.
Great to have you here. How are you thinking about twenty twenty four?
So when we think about twenty twenty four, it's it's it's a year of transition for tech. Twenty twenty three was a year that people were extremely concerned about inflation. They were extremely concerned about about the impact of inflation on tech. And at the end of the day, we'll see tech spending around about five percent, which continues the trend that tech is just so core to what companies do for next year. This five percent for twenty twenty three.
When you say tech spending, what is the umbrella that that covers.
So think about information technology spending, So everything from devices like personal compute devices, all the way through application software, all the ways of the hardware, software, all of it, and services.
What about cybersecurity.
Services, securities in there, any any it and professionals And this is across is across the world, it's across it's across all regions.
I would think it'd be higher five percent a lot.
Yeah, So five percent we've seen we saw it ramp up to double that during COVID when we saw things accelerate, but you know, we've seen it bounce in that five to eight percent range for it's been pretty range bound for quite some time. If you take out sort of the two thousand and eight downturn, if you take out the craziness that happened during COVID.
What kind of growth were we seeing prior to the pandemic the year before.
So, prior to the pandemic, like I said, you know we saw that in those years it was about seven percent. Yeah, so it was kind of in that range.
Okay, why why isn't it higher? Why hasn't it grown? As we've become more reliant on tech.
Every company, the tech you think about is hot, the new hot thing it's and that stuff is growing, right, So application software ten percent, and we've seen you know, you think you think about the cloud thirty percent growth now cooling.
To so companies are spending less on let's say a PC for every person because they've come down in price. These are commodities, and they're spending more on the cybersecurity stuff that keeps there.
So it's actually worse than that. If you look at something like twenty twenty three, it spending growth in PCs got shalacked. It was down fifteen to fourteen percent. It was down dramatically. Now, PCs are actually a thing that moved the needle because every man, woman and child needs a PC who's needs to be connected to the internet, and they spend somewhere between eight to twelve hundred dollars on a PC. So as PCs start to come back, which we think that they will next year, they actually
move the needle on it demand. It's not uncommon to see them move the needle a couple percentage points.
Why are they coming back next year.
They're coming back next year because there's because we saw this huge increase during the pandemic, and they start to get old and they start to age and they break and people need to start replacing them as well. There'll be a Windows eleven upgrade cycle next year and we'll start to see new PCs that actually bring wait for it,
AI out to the edge. So you see a coprocessor which will be able to run the AI workloads, and we think that will start to fuel by the middle of next year another upgrade cycle.
It's just like it's like what's old is new again, except for what's not old AI that's I'm just really surprised that we're not seeing the spend as a bigger portion of revenue right now, partly because our jobs everywhere have become so much more reliant on tech. Tech is no longer you know, a segment. It's this layer that sort of every company needs it.
And that's and that's why it used to be that when GDP got the sniffles, tech would get pneumonia, tech would collapse, everyone would pull over. That's no longer happening now. So even though we've seen pullbacks, even in COVID where we saw GDP go negative, it never went negative. It went down to about one percent growth. So again it's that it's that point him that people still have to
invest in it. And for the technologies that are in this part of the central nervous system of an organization, like application software, you're not going to get it out. You might cut down the number of users with access to it, but you're not going to get it out of the organize.
How much uncertainty is there among companies the global corporate community when it comes to the it it spend and like pulling the button and saying we're going to make the spend are they just nervous about kind of what's to happen.
So the spend falls into a couple of categories. There are definitely areas where you can pump the brakes, you know what, push that server a little bit longer, don't, don't, don't replace it. Maybe we don't. We don't, we don't run that program to add a new application, so our cloud spend doesn't go up. But when you get into the core stuff that's running a business, not a lot companies need to continue to invest.
I guess what I was trying to get to Crawford is this whole idea of just all the geopolitical uncertainty, and it just feels like when we get through kind of one phase, something new comes. And obviously you know, whether it's Russia, Ukraine, whether it's right now Israel, Hamas continued tensions. Even though some things fee a little bit better between US and China, they're still there. So I'm just wondering how much of the geopolitical, if at all, impacts the IT spend.
It does impact I spend. Things like energy prices are definitely a headwind, and we see that in certain regions inflation can be a significant headwind. I mean a company is dealing with a bag of money that they have to spend, so they definitely will pull back in inflationary times. And that was a lot of the trepidation that we saw this year where we thought at the beginning of the year, boy, this we could really see the market pull back in an inflationary environment.
So backs off in twenty twenty four.
So I think when you look at twenty twenty four, you'll actually see more of a recovery. Our expectation is back to Tim's point, we'll see a little stronger growth and that'll be fueled by PC upgrade cycle, a moderation of the pullback and the cloud again. Cloud went from three infrastructure as the service went from thirty percent spending this year down to about eighteen percent spending. So that'll
come back and be over twenty next year. And we heard a lot about that pull back with things like Azure, pullback with things like AWS. We're going to see that start to moderate as companies. To your point, Carol, need to start investing again.
But don't some of these clouds service providers, don't you increase usage of them when business increases, Like if you're Netflix, and you're using a cloud service provider as a CDN right or you know, to help you with your CDN and deliver content everywhere. The more people who are signed up for Netflix means the more people are streaming content, which means your bills with the cloud provider are going to go up. So not necessarily a choice you have whether you're going to invest or not.
That's right. And so that's a business that is born on the cloud, and everything about their business is associated with the cloud. So as they've ramped their business up, they've been all in on the cloud. But if you take a company and again making this up, but if you take a company like an American Express, they might decide, in tough times, you know what, we're not going to
invest in that incremental program in the cloud. We're going to just stay where we're going to close to stay where we are, and therefore that incremental dollar doesn't necessarily get spent. So you really have to think about companies in multiple categories. Yes, there are companies like Netflix that were born on the cloud. Everything they do is there are other companies that are continuing to move to the cloud, and they may choose to move a little slower as.
You think about next year, are you more optimistic or less optimistic?
Oh? Absolutely, we are a little bit more optimistic. We feel like every day the lane associated with this off landing gets a little bit wider. We see companies getting more confident in their spending and that's why we're confident that we'll probably see again a couple more percentage points
growth next year and recovery in some key categories. We'll see stability in software, we'll see recovery and devices, and we'll likely see areas that have been infrastructure bound, like server and storage be fairly study.
So when people talk about recession, are you like, based on what I'm seeing in terms of the expected it spend, you.
Say, yeah, we see that as there's definitely downside scenario associated with it, but we see it as a lower probability at this.
Time but spend, but just our lower probability in terms of recession.
In lower probability in terms of a negative impact on it stated.
Recession, all right, We're going to continue. I feel like there's more that we want to talk about in terms of AI and I'm just curious. You know, also, as you talk to a lot of the clients and customers out there, just kind of some of the things that are top of mind for them. So we're going to come back with Crawford del Preett. He's president at IDC International Data Corporation here in our Bloomberg Interactive Broker Studio
because I'm thinking about Tim. We're just coming off of all of the software, the application software companies, you know, We've been going through their earnings reports. These many of these names have been on fire this year.
Yeah, they have. But there's also some startups that have been struggling in the space too, which I find really interesting, and they've been doing layoffs and have trouble raising money as well.
Crawford del Prett still with us, president at id C Global Market Intelligence Firm, and he is still with us here in our Bloomberg Interactive Broker Studio.
Can we talk AI? Yeah, but I want to ask Okay, sorry, that's what I want to talk about it.
I do care about spend, but I also I am curious because you guys consult you talk with clients. What's the constructive conversation to be having around AI right now? What are you hearing from those clients?
I think what customers are starting to get into now are what is we're sort of beyond kind of the big mind art of the possible, and we're now getting into how can I actually apply AI to my business and what are the barriers associated with AI. So a lot of the axioms that have always applied to tech apply here, which is, you know, things like garbage in,
garbage out. You've got to get your data organized. You've got to understand how to structure your data in order to make sense and in order to be able to synthesize your data in order to make better decisions with
your data. And so we're spending a lot of time talking with customers around the choices they make around their data, how they invest in their data, and how they can really think about structuring it for a world where they're going to be making decisions that they're potentially synthesizing and getting output from AI.
You know, Carol knows this. I've been completely obsessed with the sort of two different schools of thought when it comes to development of artificial general intelligence AGI, especially in the wake of everything that happened at Open AI. Sam Wellman, you came on and spokes during that crisis. I don't know if I could call it a crisis. Actually during the drama, let's call it drama the thing, Yeah, are you you spend you know, you're in this day in
and day out. Is there any sort of reality to the idea that artificial general intelligence is something we as a human species should be concerned about.
Oh, absolutely there is. It's going to take a while for us to get to that point. And I think that seeing companies start to come together and have a discussion around the responsibility and not necessarily doing it after the horses have left the proverbial barn is very very important. I think we're starting to be able to elevate that
but that that discussion. But I definitely believe that the ability to do harm and the ability to spin people up with misinformation, those are things you can just start to see on the horizon where we really have to think about what is the provenance of that decision or of that data. And I think we're going to see a lot of that. I think we're going to see governments start to require Okay, you've you've been told something, but what was the source of that? Where did that information come from?
So like jurialism a little bit, Well, no, I mean a lot of it. Like I used to think about when I started, you know, this idea, you had to know what the source of the material was, right, and whether it was a perspective or point of view, so subjective versus objective or data points who supplied it. So it's kind of interesting to hear you say that, But I do wonder what's a to take Crawford. Are we going to be kind of chasing just like we were
in social media? Like social media? Right, where's the yes?
Sadly think I think companies are going to try to get ahead of this. I think governments are going to try to get ahead of it, but we are going to be chasing it for a long time. I mean, what happens when someone can apply AI to social engineering piece of ransomware that works really really well, and I'd
like to have thirty by tomorrow morning. What happens when someone can say, oh, you know what, if I alter the code of that genome, I can create a new kind of a virus and I'd like ten thousand by tomorrow. These are the really horrible things that people could do with generative AI. To really think about setting loose a new generation of malware in a way, we're not really thinking about chasing.
But each example that you bring up has a person behind it making a decision to actually do that. Yeah, what about that science fiction scenario where literally the robots become more powerful than us because they can think, because they can reason.
So when you start to get to broad agi, if you will, that is a risk where when you're dealing with massive amounts of information and the machine starts deciding what's right and what's wrong, then you're into that zone and you're into that zone of wait, wait a minute, what do you mean my credentials don't work because now I've been decided that I'm a person who shouldn't be included in this place, in the airport, on the plane, in some safe place. Make up your science fiction scenario.
But when you start dealing with huge volumes information and instantane, instantaneously making those kinds of decisions, things get a little bit dodgy.
Isn't it kind of sort of the problem with self driving cars? Right, dog on the right, woman with a stroller on the left. Actually, how does it and someone it's going to hit something?
Right?
How does it make that decision? Right?
And so someone has to write that code and get to a point where that decision can be made. But eventually there's a set of parameters and rules associated with decisions like that, and the machine has to decide.
Are you worried because of warfare? I'm sorry military warfare.
Of course? Yeah, I mean absolutely. I mean these are the kinds of things that bad actors can capitalize on, and bad actors sometimes get aggregated and becomes a bad nation.
Think of the Jones story that we did.
I know, and you know, I go back to the Elon Musk conversation that he had at the deal Book summit at the New York Times last week. He said that, you know, the government doesn't allow you to build a nuclear weapon in your backyard. There are guard rules and rules and regulations. He thinks this is more dangerous than a nuclear weapon.
Yeah, and I think he's jumping ahead a number of steps. But I think if you walk back from that putting the bullets in one hand and the gun in the other, and being able to say, Okay, I'm going to give you the tools to load those together and and eventually start shooting, he's not completely wrong in terms of where you can draw the line to, and so I agree that we have to be really mindful as governments to
think about not letting these circumstances happen. And unfortunately, Carol, I'll take the conversation back to something that you asked, which is are we going to be playing catch up?
And I think the.
Answer is, more often than not, we are going to be playing catch up because the number of situations and the number of instances is just so vast and we just don't know how why that spectrum can get.
That's all sobering. Do you think the good will outweigh the concern? Okay, and just got about thirty seconds.
Yeah, So I believe we are going to go through a very very difficult period where work and jobs get redefined and there are a lot of roles and a lot of jobs that are going to be threatened by AI. Think about the legal profession, think about paralegals, think about accountants, think about those kinds of areas. We will then invent new jobs that can stand on the shoulders of AI, and people will be reskilled and we will that will be a great time.
Who created way as or co founder? He was kind of saying as very similar.
Absolutely if there's going to be a period of pain associated with AI that will I think lead to a period of tremendous growth.
But there's also responsibility that comes along with any technology. Happy New Year, be well, CRAWFORDIL Pratt I DC, Thank you, thank you,