Microsoft leads software pack as survey shows uptick in IT spending: KeyBanc

Microsoft (NASDAQ:MSFT), along with several cybersecurity firms, could experience an uplift during the first half of 2025 as KeyBanc’s third quarter 2024 survey of value-added resellers, or VARs, shows an increase in IT budget expectations.

“As for 2024 IT budgets, there was a slight uptick in growth expectations, but the bigger increase came in 2025 IT budget expectations, which this group now forecasts to accelerate to 4.4% compared to a 3.2% expectation 90 days ago,” said KeyBanc analysts, led by Jackson Ader, in an extensive investor note.

The results prompted KeyBanc to boost several price targets. Microsoft was increased to $505 from $490, Palo Alto Networks (NASDAQ:PANW) was raised to $435 from $400 and CyberArk Software (NASDAQ:CYBR) was elevated to $340 from $310. All three stocks have Overweight ratings from KeyBanc.

“Today, 37% of VARs expect to see an IT budget recovery in the first half of 2025,” Ader said. “That is an uptick from last quarter and, importantly, begins in just a couple of months, meaning the visibility is higher than it was previously.”

The upcoming U.S. presidential election prompted 26% of survey respondents to delay finalizing their 2025 IT budgets until the dust settles in the ballot boxes.

Another 46% of respondents indicated artificial intelligence spending is affecting other areas of IT budgets. They said AI and generative AI are most likely to detract from the front office, back office and security spending.

Still, 2025 security budgets are expected to increase by 14.4% in 2025, which is positive for Palo Alto, CyberArk and SentinelOne (NYSE:S).

The VAR survey follows positive results from KeyBanc’s small to medium business Q3 IT survey, published on October 1. SMB respondents also expect a 4.4% increase in IT spending in 2025 compared to a 1.9% increase in 2024.