Thus far, 2024 has not proved to be a year of sweeping, clearly defined trends for the technology sector, but there is a theme that has defined industry activity overall: caution. While interest rates have not come down, they have settled, leading some companies to be willing to take action on deploying available capital, but doing so in a conservative, measured way. For those that are making strategic investment, digitization continues to remain a major priority.
Artificial Intelligence
In terms of digital investment, Artificial Intelligence (AI) is positioned to reshape the technology landscape, with most companies regarding it as an essential element of their growth strategy and even key to their business valuations. While interest in AI remains high, with businesses across all industries and sectors eager to adopt it, the big question remains how to do so. While larger businesses are already testing traditional AI to create greater efficiencies, the potential application of newer offerings like Generative AI remain largely speculative.
A handful of large tech companies are responsible for most of the spending that has gone into AI development thus far, and this investment has been devoted predominantly to building the infrastructure to train large language models. But the technology’s usefulness will come from developing applications, and these use cases remain to be determined. “When it comes to the current state of AI, we’re still in the nascent stages. The industry is coalescing around a few key areas (contact centers, developer productivity, summarization, improved marketing, etc.), but the use cases have yet to find themselves on a definitive path to production. While initial proof of concepts generated excitement, there is a big gulf that lies between proof of concept and a production ready solution,” said Matthew Embacher, managing director of the Technology sector for PNC Corporate Banking. “But the fundamental belief is that the applications will be transformative, and businesses are positioning themselves to be ready to integrate them.”
Cybersecurity
Another area of technology investment that is top of mind for businesses across all sectors is cybersecurity. As ransomware attacks continue to proliferate, companies are evaluating spending to put cybersecurity defenses in place, and tech companies continue to develop technology to protect against threats. But even as the commitment to cybersecurity defense remains necessary, the reality for technology companies and their customers alike is that that many of the breaches are rooted in social engineering, which makes fully protecting against them a formidable challenge. Nevertheless, cybersecurity technology continues to be one of the largest spending categories for tech companies as they work to keep pace with threats.
Market Activity
While the push toward digitization remains a steady force, one area that has seen less consistent activity is the marketplace for tech companies. While there was speculation that mergers and acquisitions (M&A) were likely to pick up in 2024, execution remains episodic. The reasons for this may have to do not only with the current high-rate environment, but also a disconnect in expectations between buyers and sellers. “While there is some M&A activity happening, we’re not seeing sustained activity, in part, because both buyers and sellers think valuations are not where they should be. Sellers are waiting for valuations to go up, and buyers are waiting for them to come back down,” said Embacher. “Essentially, attrition ultimately will play a role, as both sides have to evaluate what terms they’re willing to accept, even if they are different from something more ideal that would have been attainable in the past.” Lower M&A activity may also be due in part to increased scrutiny from federal regulators, who are closely monitoring large tech companies’ interest in acquisition opportunities.
According to Embacher, even if companies are not ready to take action, there are steps businesses can take to be ready. “While we’re seeing some intermittent activity, it is not yet enough volume to be indicative of momentum towards a definitive trend. Nonetheless, we know it is very much on the minds of business leaders. These companies should be creating a culture of optionality, making sure they are optimizing and maximizing their liquidity, so that when the time comes, they are able to execute.”
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