No Bounce-back in IT Budgets

Tech vendors will begin filling the rather bleak picture of business during the April-June quarter as most of the big names release financial results in the coming weeks. But for most on Wall Street, it doesn't really matter.

Investors have already basically dismissed the impact so far of the global COVID-19 pandemic and accompanying recession, which stands as the sharpest economic downturn since World War II. Instead, they have been busy piling into the stocks of the companies they expect to profit from a snap-back in tech spending in the coming months.

That bullishness has pushed S&P's IT sector index up 16% so far this year, hitting its highest-ever level, according to S&P Global Market Intelligence. Much of the sector's record run can be traced back to investors' expectation of a clear 'V-shaped' recovery for tech. Their thinking goes something like this:

• IT spending in Q1-Q2 will be soft (perhaps historically soft) as businesses focus on the tech needed to meet the immediate demands of their remote workforce, such as collaboration software and security for distributed workers. (See a special 451 Research report on how vendors are positioning their offerings to help employees stay productive while working from home.)
• With the threat of COVID-19 receding and work 'normalizing,' IT spending in Q3-Q4 will get a big boost as companies catch up on projects they deferred because of the pandemic.

As an investment thesis, it sounds plausible. The trouble is that it doesn't actually line up with the views of the people who write the checks for hardware and software. In a timely 451 Research survey, a plurality of IT buyers said their budgets are down for the rest of the year.

In 451 Research's just-published Voice of Customer: Macroeconomic Outlook, Corporate IT Spending, four of 10 respondents (41%) said they have less money to spend on IT in the second half of 2020 than they did in the coronavirus-scarred first half of the year. That's more than three times the 12% of respondents who indicated they had bigger budgets for technology products and services. It's hard to see a V-shaped recovery reflected in that bearish outlook.