High interest rates, worries about the potential for a slowing economy, and geopolitical challenges contributed to a slight weakening of global tech spending in 2023. Facing decelerating revenue growth, many tech companies ramped up layoffs last year, continuing to adjust their workforces after aggressive hiring in prior years. Now, there may be light on the horizon: Economists are more optimistic about the US economy as a whole, lowering the risk of a recession in 2024 to below 50%. For the tech sector specifically, analysts are optimistic about a potential return to modest growth in 2024, with more robust prospects for 2025.

What could help drive a tech rebound? Global IT investments are expected to be fueled largely by double-digit growth in spending for software and IT services in 2024. Analysts estimate that public cloud spending will grow by more than 20%, and they foresee stronger demand for cybersecurity. AI investment (not specifically generative AI) is also seen as contributing to overall spending growth. Economists have projected that AI-related investments could reach $200 billion globally by 2025, led by the United States.

Cybersecurity is also expected to play a key role in the comeback. Analysts forecast that global spending on security and risk management will see low double-digit growth from 2023 to 2024. Motivators include a persistent threat landscape, ongoing cloud adoption, remote work, the emergence of generative AI, and evolving data privacy and governance regulations. While the rapid adoption of generative AI may expose organizations to new attack surfaces and techniques, AI may also play a pivotal role in speeding up breach detection and containment.

Strategic questions to consider:

• How will our company navigate the evolving economic landscape, continued high cost of borrowing, and ongoing geopolitical challenges while still achieving our growth objectives?
• Has our company evaluated how adopting AI—specifically generative AI—might help us drive productivity and efficiency gains? Have we considered how embedding generative AI capabilities into our products and services could help drive revenue and competitive advantage?
• Is our company continually assessing the security threat landscape and keeping up with the latest advances in security and risk management? Are we considering how AI could play a role in helping us boost our defenses?
• How can we ensure that our workforce has the right mix of skills for competitive success? Are we focused on building expertise in growth areas, especially cloud, generative AI, and cybersecurity?
• Are we considering how strategic acquisitions could complement our existing capabilities, help us innovate, expand our market reach, and even augment our talent?

The worldwide, interconnected nature of the tech industry, with its global supply chains and international manufacturing and development centers, makes it highly vulnerable to global shocks including natural disasters, pandemics, and geopolitical tensions.

Supply chain resilience is no longer simply prudent; it’s critical. To help mitigate the risk of disruption, tech giants are diversifying their manufacturing and development locations and supply chains, reducing reliance on single suppliers or countries. Many companies are working to establish relationships with suppliers worldwide and spread operations across various trusted regions. All critical product components and elements of the value chain should have redundancies and alternate sources. Moreover, tech companies should work closely with suppliers to ensure resilience and flexibility throughout the production network.

Throughout 2024, tech companies will likely continue to prioritize sustainability and resilience, aiming to strike the right balance between globalization and onshoring/self-reliance. Organizations should continue to globalize their operations to take advantage of lower costs, greater access to talent, and faster innovation. However, they should also look to onshore or self-source critical components and operations to reduce their risks from global disruptions.

Strategic questions to consider:

• Has our company adequately evaluated our supply chain and operational vulnerabilities? Do we have a strategy for mitigating them?
• Is our company’s supply chain designed for flexibility in the short term and sustainability in the long term? Have we implemented multisourcing strategies to ensure a stable supply chain?
• Have we determined the right blend of onshoring, nearshoring, and friendshoring?
• Have we assessed the stability of our onshore and global talent pools, ensuring that critical functions are not concentrated in vulnerable regions? Is there a way to distribute our tech talent to make it more resilient to global disruptions?

In the past year, US tech companies focused intensely on generative AI, embedding it into their offerings and signaling plans to double down on investments. Across the sector, many tech companies will face the challenge of how to augment their products and services with generative AI to remain competitive.

On the software front, Deloitte has predicted that nearly all enterprise software companies will embed generative AI into at least some of their products in 2024 and that the revenue uplift (for these companies and for the cloud providers of generative AI processing capacity) will approach a US$10 billion run rate by the end of the year. Deloitte expects 2024 to be a transition year, as generative AI-enabled software tools launch and adoption and revenues start to gain traction, setting the stage for more robust potential growth in 2025. And on the hardware front, Deloitte expects the uplift for chips and servers that execute generative AI to surpass US$50 billion in 2024.

Tech leaders should consider how to best utilize and deliver this new functionality. This could involve using “off the shelf” solutions from cloud and tech providers with generative AI integrated, building their own proprietary solutions (which could be prohibitively expensive), or partnering with co-developers.

Strategic questions to consider:

• Have we determined which use cases and workflows could be best improved with generative AI? Have we assessed where we could deploy generative AI in our value chain?
• Are we evaluating how generative AI could create opportunities for new products, services, business models, and, ultimately, new revenues?
• Does our workforce have the right set of skills for upcoming generative AI initiatives?For example, have we considered training existing staff to improve generative AI literacy? Are we recruiting the right talent?
• How will the changing legal and regulatory landscape affect our generative AI plans? Are we setting the right guardrails on our generative AI initiatives?

Large online platforms built up enormous power and influence over the past decade, and regulators are considering how to best address the potential risks. Tech companies of every size are under pressure to ensure data protection, harm reduction, ethical use of AI, and commitment to sustainability goals. They’re also tasked with pivoting to maximize tax credits and incentives while minimizing effective tax rates in the face of new global tax regulations.

From the rise of AI to environmental, social, and governance (ESG) compliance, these developments could drive increased investment in cybersecurity, data management, and ESG reporting solutions. Tech companies will likely benefit by working with regulators and take an active role in testing their products and services for compliance.

Strategic questions to consider:

• How can we ensure that our AI implementations don’t expose the company to potential regulatory and legal risk?
• What investments should we explore in cybersecurity and data governance to achieve compliance with new consumer-protection regulations?
• Can we leverage regulatory sandboxes to test our products and services?
• How can we model potential tax scenarios now to inform operational decisions for 2024–2025?
• How can we maximize ESG credits and incentives while preserving our effective tax rate?