摩根士丹利-中国IT服务与软件：2026年上半年中国CIO调查：乐观情绪昙花一现-China CIO 1H26 Survey：Fleeting Optimism-20260504

MorganstanleyRESEARCH

May4,202612:20AMGMT

ChinaITServicesandSoftware|AsiaPacific

ChinaCIO1H26Survey:FleetingOptimism

ChinaITspendinggrowthissettostayatamulti-yearlowlevel,despitethegoodtechdevelopmentofAgenticAIin1Q26.ThedebateonwhetherAIwill'eat'softwarewillcontinue,withbothproandconfindingsinoursurvey.AlibabaisthebiggestwinnerduetoitsfullstackAIcapabilities.

Alphawise回

KeyTakeaways

2026ITbudgetgrowthexpectationisat4.8%vs.5.2%for2025,and12.6%inthelast(2H25)survey.Servicesoutperformsoftware,SOEsoutperformPOEs.

AI-relatedspendingcontinuestoshine(expectedtodoublein2026),butisstilllowerthanpreviousexpectationsduetodelayedadoption.

ThereisrisingAIbudgetreallocationfrombothsoftware(negative)andnon-ITspending(positive).

PubliccloudadoptionwillacceleratewiththehelpofAI,withAliCloudandVolcanoEnginesettogainshare.

QwenandDoubaoaregainingAImodelshareattheexpenseofDeepSeek.

Macro:Theoptimismtowards2026expressedinour2H25AlphaWiseChinaCIO

surveyturnedouttobeshort-livedandtheupdated2026ITbudgetssurprisedonthedownsidewith7.8%downwardrevision.Webelievemacropressure,global

geopoliticalriskandthelatecycleimpactofdeflationcontinuestoweighonthe

confidenceofCIOs.Onthepositiveside,ITvendors'willingnesstodiscountpricesdeclinedmeaningfullyfromhistoricallyhighlevels(ourCIOsurveysbeganin2020),suggestingmildercompetition.

AI:Asatoppriority,AI-relatedbudgetpenetrationis12.1%in2026vs.6.1%in2025.Theybothcameinlowerthaninprevioussurveysandwealsoobservedrepetitivedelaysinenterprises'AIadoption.SoftwareremainstheprimaryareaofAIspending(40%),butlowerthanpreviousexpectations(46-47%)duetorisinghardware

spending.AIinvestmentiscominglessfromentirelynewbudgets,butmorefromnon-ITspending(likelymarketing/businessbudget,whichexpandsAITAM)andalsoexistingsoftwarespending(whichsupports"AIeatssoftware").Thepotential

negativeimpacttoheadcountislessthanbefore–overthenextthreeyears,CIOsestimatethat14%ofworkhourscouldbereplacedbyAI,vs.15%inthe2H25survey.PubliccloudisthedefaultAIplatform.

Vendors:WeobservedstrongmarketsharegainpotentialforAlibabainnearlyalltheAItechstacks,includingcloud,modelandsomeapplications.ByteDance's

(ValcanoEngineandDoubao)marketperceptionisalsoonafastrisingtrend.

IDEA

MoRGANSTANLEyAsiALimiTED+YangLiu

EquityAnalyst

Yang.Liu@

+8522239-1911

LydiaLin

EquityAnalyst

Lydia.Lin@

+8522239-1572

GaryYu

EquityAnalyst

Gary.Yu@

+8522848-6918

TomTang

EquityAnalyst

Tom.Tang@

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MavisNg

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GREATERCHiNAITSERvicEsANDSoFTwARE

AsiaPacific

IndustryViewIn-Line

Relatednotes:

AsiaTechnology:China1H26CIOSurvey–Stay

Selective

ChinaITServicesandSoftware:ChinaCIO2H25

Survey:TheWorstMayBeOver(27Nov2025)

USTech:1Q26CIOSurvey–AIPriorityRising,IT

BudgetsLessSo(9Apr2026)

China'sEmergingFrontiers:China'sAIPath:

MonetizingSurgingTokenUseviaAICloud(16

Mar2026)

China'sEmergingFrontiers:China'sAIPath:

OwningtheFullAIStackviaIn-houseChips(11

Mar2026)

MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanley

Research.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

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Morganstanley

RESEARCH

IDEA

KeyFindings

ChinaCIOs'confidencedipsagainin1H26afterashort-livedreboundin2H25:

•2025ITspending:AccordingtoourAlphaWise1H26ChinaCIOSurvey,2025ITbudgetgrowthendedupat5.2%vs.7.4%inour2H25Survey,and7.2%for2024'sfinalread.ThedownwardrevisionoccurredacrosssoftwareandITservices,whilehardwarebudgetgrowthsawupwardrevision.

•2026budgetpreview:CIOshavemateriallycuttheir2026ITbudgetoutlooks,

withexpectedgrowthfallingto+4.8%,arecordlow(ChinaCIOsurveysbeganin2020),from12.6%inthe2H25survey.Thedowngradewasledbysoftware

(_7.8ppt),followedbyhardware(_4.5ppt)andITservices(_1.6ppt).Weattributethesharpresettoadeterioratingmacrooutlookdrivenbyheightenedgeopoliticaltensions(US-Iranconflictsinceend-Feb2026)andpersistentdeflationary

pressures.WethinkitisalsolikelythatCIOswillholdbackinfrontoffastchangingAItechnology.

•Long-termITinvestment(next3-yearITinvestmentas%ofrevenue)

confidencealsofell,with35%ofChinaCIOsexpectingITspendingasapercentageofrevenuetogrowoverthenextthreeyears,downfrom47%intheprevious

survey.Meanwhile22%anticipateadecline,anincreasefrom18%previously.

•CIOdecision_makingremainsmicro_driven,butmacrofactorsareregaining

importance...Inthe2H25survey,businessgrowth/requirementsre_emergedastheprimarydriverofITspendingrevisions.However,inthe1H26survey,theshareofCIOscitingbusinessgrowthhasfallento35%,whilemacroeconomicconditionshaverisento32%,signalingare_balancingtowardmacroconcernsamida

weakeningoutlook.

•...butvendorpricecompetitionhasmoderated,with78%ofCIOsobservingmoreaggressivediscounting–downfrom88%previously.OutsourcingandinternalIThiringaremorebalanced,butexternalITservicesremainfavoredforbudget

allocation.CIOsshowgreaterdivergencebetweenexternalandinternalIT

allocation,butcontinuetofavorexternalIT.50%ofCIOsareincreasingbudgetsforexternalITservicesandstandardproducts(upfrom47%lastsurvey).

•POEsleadthedownwardrevisionofITbudgets:SOEbudgetgrowthin2025wasreviseddownby1.8pptto6.5%,whilePOEbudgetgrowthwasalsoreviseddownby5pptto3.3%.Intermsofthe2026outlook,theCIOswesurveyedalsoreviseddownSOEbudgetgrowthto6.9%(-5.6ppt)andPOEbudgetgrowthto4.4%(-

8.9ppt).

AI:toppositionenhanced,butadoptionpacemoderated:

•AIremainsthe#1ITinvestmentpriority,withthepercentageofCIOsviewingitasthemostprioritizedITinvestmentmovingfrom30%inourlastsurvey,to37%.TheshareofITspendingallocatedtoAIisprojectedtorisefrom6.1%in2025to12.1%in2026.ButthelaunchoffirstAIprojectshasgenerallybeendelayed,withmostCIOs(47%)eying2027.

•MoreAIspendisshiftingoutsideIT.TheshareofAIinitiativesfundedbynewITbudgetsdroppedsharplyto28%from43%,whilenon_ITbudgetfundingroseto17%from8%.

Morganstanley

RESEARCH

IDEA

•WheredoestheAIbudgetcomefrom?AIinvestmentiscominglessfromentirelynewbudgets(28%vs.43%previously),andmorefromnon-ITspending(17%vs.

8%previously)–andalsoexistingsoftwarespending(22%vs.10%previously).ThesebudgetshiftspartlysupportthemarketfearsofAI'eats'softwaretosomeextent.

•Thesurveyresultreadsmostnegativelytoenterprises'existingsoftware

vendors.TheAIspendingmixhasshiftedbacktowardhardware,compressing

software’swalletshare.Software’sshareofAIbudgetsfellto40%in2025/26

(from46/47%previously),whilehardware'sshareroseto34%/33%,asAIfundingincreasinglycomesfromsoftwarebudgetreallocation(upto22%).Vendor

disruptionisintensifying,withmoreCIOspreferringnewsoftwarevendors(37%)forAIfeaturesoverincumbents(35%).

•ThesurveyresultreadsmostpositivelyforpubliccloudvendorswhoalsohavegoodAImodels.CIOs'AIdeploymentpreferencesareskewedtowardcloud

hyperscalersandAImodeldevelopers,benefitinghyperscalerswithstrong

in_housemodels.Alibaba(Qwen)hasconsolidateditslead,whileByteDance(Doubao)isemergingasaclearchallenger.AIisalsoacceleratingpubliccloudadoption,witharisingshareofAIworkloadsmovingtotheclouddespite

moderatingnear_termexpectations,supportingAlibaba’scontinuedleadership,withByteDanceandHuaweicatchingup.Cloudpricingisedginghigher.

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DetailedSurveyResults

ITBudgetOverview:CIOConfidenceFallsAgain

2025finalbudgetswerelower:AccordingtoourAlphaWise1H26ChinaCIOSurvey,

2025ITspendinggrowthwas5.2%,representinga2.2pptdownwardrevisionfromour

2H25surveyresult.Therareupwardrevisioninthatlastsurveydidn'tlast.However,thelossofconfidencehasoccurredonlyinsoftwareandITspending,whilehardwareIT

spendinggrowthevensawupwardrevision.Althoughsoftwareledthegrowthdownwardrevisionwith4.4pptdecreasefrom9.9%(2H25survey)to5.5%,thefinalsoftware

spendinggrowthstillishigherthaninitialplannedin1H25'ssurveyat4.2%.MeanwhileITservicesfinalgrowthat3.4%isfarlowerthaninitiallyplannedin1H25at5.7%.

2026outlookhasalsocooled:ChinaCIO's2026ITbudgetgrowthexpectationsaveraged+4.8%,creatinganewlowlevel,downsignificantlyfrom+12.6%in2H25survey.This

downwardrevisionwasledbysoftware(-7.8ppt),andfollowedbyhardware(-4.5ppt)andITservices(1.6ppt).Wereckonthesignificantjumpisdrivenbygeopoliticaltensions(US-Iranconflictsinceend-Feb2026)negativelyaffectingthemacroeconomyoutlookfor

enterprises.ThecontinueddeflationremainsthekeyhurdleforCIOstoincreasespendinginourview.WealsothinkCIOswouldliketodefersomeITinvestmentwhilethe

underlyingtechnology(AI)isstillevolvingrapidly.

OETSGE

Exhibit1:ExternalITspendingrevision–historicallowfor2026

12.6%

7.4%

5.2%

4.8%

2H201H212H211H222H221H232H231H242H241H252H251H26

verallxternalIpendingrowthxpectations

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

2021Budget

2025Budget

2022Budget

2026Budget

2020Budget

2024Budget

2023Budget

Source:AlphaWise,MorganStanleyResearch

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Exhibit2:Softwarebudgetrevisions–2026growthratedouble-dip

Source:AlphaWise,MorganStanleyResearch

Exhibit3:ITservicesbudgetrevisions–2025budgetslargelydeclinedwith2026outlookalsodown

Source:AlphaWise,MorganStanleyResearch

Exhibit4:2025budgetgrowthreviseddownto5.5%forsoftwareand3.4%forITservices

2025ExternalITSpendingGrowthExpectationsbySector

2H24Survey1H25Survey2H25Survey1H26Survey12%

7.2%

6.2%

3.4%

SoftwareProfessionalServicesTotalestimatedexternalIT

SpendingChange

9.9%

6.3%

10%

8%

6%

4%

2%

0%

Hardware,Communication&NetworkingEquipment

5.5%4.2%

7.4%

5.2%

4.3%

3.4%

5.7%

5.2%

3.7%

5.8%

1.7%

Exhibit5:2026budgetgrowthreviseddownto4.8%2026ExternalITSpendingGrowthExpectationsbySector

2H25Survey1H26Survey

12.6%

8.6%

7.0%

4.8%

13.1%

8.1%

3.6%

SoftwareProfessionalServicesTotalestimatedexternalIT

SpendingChange

14.0%

12.0%

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

Hardware,Communication&NetworkingEquipment

5.3%

Source:AlphaWise,MorganStanleyResearch

Source:AlphaWise,MorganStanleyResearch

CIOs'long-termconfidenceleveldipsagain,butisstillstrongerthan2H24-1H25:38%oftheCIOssurveyedexpectapotentialupwardrevisiontoITbudgetsthisyearvs.27%

expectingacut,resultinginadeclineinourup-to-downratioto1.4x(vs.3.2xin2H25's

survey).Overthenextthreeyears,35%ofCIOsexpecttheirITspendingtogrowasa

percentageofrevenuevs.47%in2H25,whilethenumberofCIOsanticipatingthattheirITbudgetshareofrevenuewillfall,hasexpandedto22%from18%in2H25.The3-yearup-to-downratioinChinadeclinedfrom2.5xin2H25to1.6xin1H26,vs.2.7xin1Q26'sUS/EU

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Morganstanley

RESEARCH

IdEA

survey.

CIOs'focus–microremainsthetopbutmacrofactorsaregainingweightagain:Inour2H25survey,micro-levelbusinessgrowth/requirementsregainedthegroundofthe

biggestfactordrivingITspendinggrowthrevisionfrommacrofactors.In1H26'ssurvey,thepercentageofCIOsviewingbusinessgrowth/requirementsasinfluencingITspending

decisionsdeclinedto35%.Meanwhilemacroeconomicconditionssawrisingshareto32%.

Exhibit6:Up-to-downratiodeclinedagain,butstillhigherthanhistoricallow

Source:AlphaWise,MorganStanleyResearch

Exhibit7:Up-to-downratiodecreasedto1.4xin1H26ExpectationsofPotentialITBudgetRevisionsThisYear

31%

28%34%

27%26%

21%28%

35%34%

37%

37%35%

26%

11%

11%17%

27%

15%18%

20%

32%

15%27%

UpwardFlatDownward

0%10%20%30%40%50%60%70%80%90%100%

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

Survey

2H20

1H21

2H21

1H22

2H22

1H23

2H23

1H24

2H24

1H25

2H25

1H26

1.7x

5.7x

4.8x

3.4x

1.7x

4.4x

3.0x

2.3x

0.9x

0.9x

3.2x

1.4x

Source:AlphaWise,MorganStanleyResearch

Exhibit8:Long-termexpectationsalsoslippedITSpendingas%ofTotalRevenueinNext3Years

73%

66%

61%61%

54%

47%42%

34%35%

31%31%

29%

25%

2%2%

80%

70%

60%

50%

40%

30%

20%

10%

0%

17%

13%11%

8%

3%

2H201H212H211H222H221H232H231H242H241H252H251H26

IncreaseRemainStableDecline

44%

34%35%36%

43%

38%

22%

18%

32%

37%

31%

29%

35%

52%

63%

5%

Source:AlphaWise,MorganStanleyResearch

Exhibit9:

Chinavs.US/EUITspendingas%oftotalrevenueinnextthreeyears

5%12%

22%

28%

50%50%

43%

46%

2%2%5%

25%

32%

34%

73%

8%10%

45%

53%

47%

37%

3Q221Q23

17%

31%

52%

38%

31%31%

1H242H24

18%29%

35%

37%

47%

34%

1H252H25

61%

54%

42%

2H221H232H23

ITSpendingas%ofTotalRevenueinNext3Years

IncreaseRemainStableDecline

6%

56%

38%

3Q23

4%

47%

49%

1Q22

8%

29%

63%

1H22

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

10%

46%

44%

1Q24

ChinaUS/EU

15%

45%

40%

1Q26

3%11%

36%35%

66%

2H20

61%

2H21

10%10%

17%

41%

3Q24

42%

1Q25

1H263Q201Q213Q21

36%

3Q25

13%

44%

35%

26%

48%42%

45%38%

1H21

54%

Source:AlphaWise,MorganStanleyResearch

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Morganstanley

RESEARCH

IDEA

Exhibit10:Macrofactorsstartedregainingweight

FactorsInfluencingRevisionstoITSpendingShareofRevenues

Businessgrowth/requirements

Macroeconomicconditions

Firm-widetechnologyupgrades

Latestregulatorychanges

Other

50%60%

44%

53%

41%

17%

18%

10%

40%

38%

35%

33%32%

36%

30%

28%

26%

2%

3%

0%

3%

2H21

1H22

2H24

1H25

2H25

1H26

7%

5%

5%

0%10%20%

1%

0%

0%

26%

26%

36%

22%

28%

23%

3%

Source:AlphaWise,MorganStanleyResearch

POEsleadthedownwardrevisioninITbudgets:SOEbudgetgrowthin2025revised

downby1.8pptto6.5%,whilePOEbudgetgrowthwasalsoreviseddownby5pptto3.3%.Intermsofthe2026outlook,theCIOswesurveyedalsoreviseddownSOEbudget

growthto6.9%(-5.6ppt)andPOEbudgetgrowthto4.4%(-8.9ppt).

CIOsaremoredivergentinexternalvs.internalIT,butgenerallyfavorexternal:50%ofCIOsareallocatingmoreITbudgettoexternalITservicesandstandardproducts,risingfrom47%inourlastsurvey.ThepercentageofCIOsskewedtowardsinternalIT

headcountexpansionalsorose,to22%from20%inourlastsurvey.FewerCIOsare

neutralforbothinternal/externalallocationthistime,at28%vs.33%inourlastsurvey.

Vendorpricewarmoderates:WhileinourlastsurveythepercentageofCIOsobservingmoreaggressivediscountingincreasedfrom77%to88%,thisportiondeclinedagain,to78%,inthissurvey.And5%ofCIOsconsideredvendorssignificantlylessaggressiveindiscountingthistime,vs.0%lasttime.Thisisapositivesign.

Exhibit11:2025externalITspendinggrowth

2025ExternalITSpendingGrowthbyEnterpriseType

4.9%

SOE

6.5%

6.4%POE

3.3%

1H252H251H26

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

8.3%

8.3%

Source:AlphaWise,MorganStanleyResearch

Exhibit12:2026externalITspendinggrowth

2026ExternalITSpendingGrowthbyEnterpriseType

SOE

POE

4.4%

12.5%

6.9%

13.3%

2H251H26

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%

Source:AlphaWise,MorganStanleyResearch

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IDEA

Exhibit13:CIOsaremoredivergentinexternalvs.internalIT

ExpectedITSpendingAllocationIn3YearsBetweenOutsourcedITProductsVs.In-House

Resources(%TotalResponses)

58%

50%

55%

40%

47%

50%

24%

24%

24%

39%

32%

44%33%

28%

15%

15%

18%

11%

12%

16%

20%

22%

Moresharetooutsourcing

Equalsharetooutsourcingandin-house

Moresharetoin-house

0%10%20%30%40%50%60%70%

61%61%

2H22

1H23

2H23

1H24

2H24

1H25

2H25

1H26

Source:AlphaWise,MorganStanleyResearch

Exhibit14:Vendorpricewarmoderated

Significantlylessaggressivein

discounting

Somewhatlessaggressiveindiscounting

Nochangeinlevelof

discounting

Somewhatmoreaggressivein

discounting

Significantly

moreaggressiveindiscounting

TechnologyVendor'sWillingnesstoDiscount(%TotalResponses)

%

9%

49%

37%

2H24

1%

9%

8%

44%

38%

2H22

1%

10%

7%

49%

33%

2H23

0%

9%

7%

50%

34%

1H24

1%

11%

10%

50%

28%

1H23

5%

10%

7%

43%

35%

1H26

4%

19%

22%

33%

23%

1H22

5%

20%

18%

33%

24%

2H21

5%

7%

50%

38%

2H25

10%

2%

11%

50%

27%

1H25

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

0%

Source:AlphaWise,MorganStanleyResearch

Priority:AITopPositionEnhanced

AIisnodoubtthetoppriority,anditsimportancerisesagain:AIprojectsremainthetoppriorityforCIOsinChina.Andthistimethisscorerosefrom30%inourlastsurveyin

2H25to37%.ThetrendissimilarintheUS/EU,wherethescoregrewto18%inthe1Q25surveyfrom14%inthe3Q25survey.ButgenerallyChinaCIOs'interestsinAIaremoresignificantthanintheUS/EU.AIhasalsobeenthemostresilientITproject,andthe

resiliencywasfurtherenhancedamongresponsesthistime.

Datacenterbuild-outslightlyretreats:ThepercentageofCIOsseeingdatacentersaslikelytoreceivethelargestincreaseinspendingahead,decreasedby1pptto8%thistimefrom9%inthelastsurvey,rankingitno.3intermsofCIOpriorities.WebelievethishasalsobeendrivenbyrisingpubliccloudadoptionforAIdeployment.

ERP(enterpriseresourceplanning)resiliencydeclines:ERPrankedastheno.2positioninresiliencyinourlastsurveywiththenetpercentageofCIOswhoseeitatleastlikelytogetcut,rising12pptto12%.However,thissurveythepercentagehasdeclinedby9ppttoonly3%.

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IDEA

Exhibit15:AIremainstoppriorityanditsimportancehasincreased

ChinaCIOsSurvey:ProjectswithLargestIncreaseinSpend

(%TotalResponses)

w2H20w1H21w2H21w1H22w2H22w1H23w2H23w1H24w2H24w1H25w2H251H26

ArtificialIntelligence/MachineLearning/ProcessAutomationDigitalTransformation DataCenterBuildout ERPApplicationsCollaborationSoftwareDW/BI/Analytics

CloudComputing

DataCenterAutomationComplianceSoftware SecuritySoftwareConsulting

CRMApplicationsTraditionalInfrastructureHardware

VerticalApplicationsSoftware DesktopVirtualization Desktop/LaptopEquipmentHyperconvergedInfrastructure InfrastructureSoftware InternetofThings MaintenanceHardware MaintenanceSoftwareOutsourcing

Servers/MainframeEquipmentSystemsMgmtSoftware

Contact/Customerservicecentersoftware/equipmentFlashStorage

HRSoftware

MobileApplications MobileHardwareNetworkingEquipment ServerVirtualization StorageHardware StorageSoftwareVPN/RemoteAccess

WindowsDesktop/PCOperatingSystemWindowsServer/OperatingSystemWirelessLAN

Other

37%

13%

8%

6%

5%

5%

4%

3%

3%

3%

2%

2%

2%

2%

1%

1%

1%

1%

1%

1%

1%

1%

1%

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

Source:AlphaWise,MorganStanleyResearch

2%

10

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Exhibit16:AIalsorepresentsmostresilientITdemandwhileERPresiliencyweakened

%ITProjectsMostvs.LeastLikelyGetCutifEconomyWorsensin2026

MostLeast

1H26Net2H25Net

7%

25%27%

10%3%

32%10%

0%

0%

0%

8%

5%

3%

3%

2%

2%

2%

2%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

-2%

-2%

-2%

-2%

-2%

-2%

-2%

-3%

-3%

-7%

-10%-13%

-13%

7%

-2%

12%

2%

0%

0%

0%

-2%

-3%

0%

0%

2%

-5%

0%

0%

3%

3%

0%

0%

-2%

0%

0%

2%

-3%

0%

2%

0%

0%

0%

2%

0%

-3%

-2%

-15%

-22%

8%

5%

5%

3%

7%

AI/ML/PADigitalTransformationComplianceSoftwareInfrastructureSoftware ERPApplicationsCollaborationSoftware

0%

0%

2%

2%

2%

2%

Servers/MainframeEquipmentStorageSoftware

3%

3%

3%

3%

0%

0%

0%

CRMApplicationsDataCenterAutomation DesktopVirtualizationFlashStorage

0%

0%

0%

0%

2%

2%

0%

0%

0%

0%

0%

0%

HRSoftware InternetofThingsMaintenanceHardware MobileApplications MobileHardwareSecuritySoftware

0%

0%

StorageHardware

0%

0%

0%

0%

VerticalApplicationsSoftwareVPN/RemoteAccess

0%

0%

0%

0%

0%

WindowsDesktop/PCOperatingSystemWindowsServer/OperatingSystemWirelessLAN

7%

5%

3%

2%

2%

2%

2%

2%

2%

2%

0%

0%

0%

0%

0%

CloudComputing Desktop/LaptopEquipment DW/BI/AnalyticsHyperconvergedInfrastructureNetworkingEquipment

ServerVirtualization

5%

3%

0%

2%

SystemsMgmtSoftwareContactcentersoftware/equipmentMaintenanceSoftware

8%

15%13%

5%

0%

OutsourcingTraditionalInfrastructureHardwareConsulting

17%

3%

DataCenterBuildout

Source:AlphaWise,MorganStanleyResearch

Deep-diveintoChinaAIAdoption

AIadoptionisdelayed,again:ThepercentageofCIOssurveyedwhosawnoimpactfromAIontheirITinvestmentsin2025enlargedfrom3%in2H25'ssurveyto20%in1H26,andthispercentagealsoincreasedfrom2%to12%forthe2026outlook.MostCIOs(47%)

plantolaunchtheirfirstAIprojectwithin12months,risingfrom40%inthelastsurvey.Meanwhile,thepercentageofCIOshavingthefirstAIprojectinproductioncurrently,declinedfrom30%inthelastsurveyto27%.

AIshareinITbudgetsgrewYoYbutmoreiscomingfromnon-ITbudgets.TheaveragepercentageofITspendingrelatedtoAIcontinuedtorisefasteachyearfrom2023-2026,butwasreviseddownwardsfrom7.7%intheprevioussurveyto6.1%for2025,andfrom13%intheprevioussurveyto12.1%for2026.AndtheaverageAIimpactonITbudgetsinthenext-threeyearswasalsoreviseddownfrom7.7%in2H25'ssurveyto6.5%in1H26.

ThegapbetweenAIpriorityenhancedanddownwardrevisionsofAImixinITbudgetsis

MoRGANSTANLEyREsEARcH11

Morganstanley

RESEARCH

IDEA

likelyowingtomoreAIprojectscomingfromnon-ITbudgets.ThescoreofnewITbudgetsasthesourceofAIinitiativesdeclinedfrom43%inlastthesurveyto28%now.Meanwhilenon-ITbudgetsourcesincreasedfrom8%to17%.Andsoftwarebudgetsarebeing

disruptedasthepercentageofAIfundingcomingfromreallocationofsoftwarebudgetsincreasedfrom10%to22%.

SoftwarewalletshareinAIshrankfromrisinghardwaremix:Inour2H25survey,

softwarewasgainingAIwalletshare,withCIOsallocating46%/47%oftheirAIbudgetsonaveragetosoftwarein2025/2026,risingfrom43%in2024.Hardware'swalletshare

withinAIspendinghaddeclinedfrom32%in2024to29%/29%in2025/2026.However,thistimewesawareversedtrend,withCIOsallocating40%ofAIbudgetstosoftwarein2025and2026.Meanwhile,hardwarewalletshareincreasedto34%in2025and33%in2026.

Exhibit17:AIimpactsonITinvestmentpriorities

24%21%26%19%11%5%20%12%12%

100%

27%36%17%21%27%

90%

80%

70%

60%

50%

40%

30%

4%11%8%10%7%5%5%20%7%20%18%

20%

10%

0%

ImpactofAI(LLM)onITInvestmentPriorities

13%46%

28%

22%

17%

34%

31