PNC 2025 Outlook: Digital Transformation Set to Drive the Technology Sector

Digital transformation continues to be a top priority for companies of all stripes, and for businesses in the technology sector, that means that 2025 is expected to be a year of opportunity.

“We continue to see digital transformation be a strong driver of all segments of technology,” said Matthew Embacher, managing director of the Technology sector for PNC Corporate Banking. “Most companies are utilizing about 20% of their enterprise technology in the cloud.¹ The remainder is housed on premise in servers, so there’s still a lot to be done in terms of the cloud transformation. This should contribute to significant growth in software, IT services, and hardware in the next few months.”

Inflection Point for Artificial Intelligence (AI)

For some companies, investing in developing AI may continue to be part of their digitization journey. But 2025 may be something of an inflection point, as businesses weigh whether the elevated expenditure in AI is worth the investment. “It’s likely that this year will be sort of a ‘use it or lose it’ moment with AI for a lot of companies,” Embacher said. “Ultimately, businesses invest in technology for two reasons: to drive efficiency and to accelerate growth. For the last few years, companies have been viewing AI as a potential driver for growth. But if it looks like that’s really not going to yield results, they’re instead going to start spending in other areas of tech that drive efficiency and lead to cost savings.”

A handful of large tech companies will continue to be main investors in developing generative AI and the infrastructure to train models, and this will include ongoing heavy investment in the construction of data centers. However, it remains to be seen if consumer demand will meet the up-front investment these companies are making in AI, as well as if they will ultimately be able to find ways to monetize the technology effectively.

Cybersecurity Investment Continues

One area of technology investment that is sure to see an ongoing increase in spending is cybersecurity. The challenge for many companies is the feedback loop that develops from the ongoing proliferation of fraud schemes. “It’s a true game of cat and mouse, because the more companies spend on cybersecurity, the more the organizations of bad actors spend to find ways to infiltrate it,” Embacher said. “This means that the cost to defend against data breaches will continue to go up, which can be frustrating and fatiguing. But security spending is a non-negotiable; if your company has a breach, it’s going to lead to significant problems and likely an even higher price tag.”

A growing interest in edge computing may also contribute to increased cybersecurity spending in 2025. Traditionally, applications have transmitted data from devices like smartphones and laptops to the cloud or a centralized data center for processing. Edge computing eliminates this step by processing data on the device, which can mitigate bandwidth and latency issues. However, edge computing devices also create more gateways that need to be secured, leading to more access points for potential security breaches.

In terms of the approach to cybersecurity, there are a couple of emerging viewpoints, generally framed within the tech industry as “best in breed” versus “platformization.” Some companies are pushing for consolidation of cybersecurity technology into the hands of a small number of vendors. While this may have an advantage in terms of managing the cost and complexity of vendor relationships, it can expose the company to major risk if their vendors’ own security has a point of failure. The other side of the coin is to have diversification of vendors, which may limit risk if an individual vendor is compromised, but which causes more operational expense and complication in tying together vendor relationships and functionality.

Cyclical Pattern for Technology Spending

The cyclical nature of technology contracts may lead to an adjustment in spending for some companies in 2025. Tech spending grew substantially during the COVID-19 pandemic, as companies tried to manage the challenges of transitioning to remote operations. Many of the contracts for purchasing technology such as laptops and licensed software that were signed during the COVID era are set to come up for renewal, and this will give companies the opportunity to decide if they want to continue or cut back on the expense.

However, the sector overall is likely to see a lift in 2025; software spend is expected to increase 14% to $1.23 trillion, up from 11.7% growth in 2024, while IT services are expected to grow 9.4% to $1.73 trillion, up from 5.6% in 2024.²

Navigating Ongoing Uncertainty

Even as an overall trajectory for growth is expected for much of the technology sector in 2025, there are some potential offsetting factors. Geopolitical dynamics may continue to influence business decisions for some tech companies, while others have been on hold from taking significant action until after the November elections. The important thing for companies to focus on, according to Embacher, is staying nimble. “There was a lot of uncertainty in the last year, but now we at least know more about the environment in which we’ll be operating in 2025, and that will allow businesses to be more front-footed in their strategy. Until the overall picture becomes clearer, it will be very important for businesses to stay nimble and be prepared to play both offense and defense as opportunities and challenges arise.”

Brilliant Begins Here

PNC’s Technology Finance and Advisory Solutions group delivers a comprehensive range of financing options and advisory solutions to fit the wide-ranging needs of technology firms. For more information, reach out to your Relationship Manager or contact us.