Software spend will accelerate to a stunning 15.2% in 2026 per Gartner. It will remain the largest and fastest-growing segment of the $6 Trillion enterprise IT spent. A massive number with record growth – the biggest growth rate in the entire IT market.
But before you start celebrating, here’s what’s actually happening with that money.
It may not benefit you at all.
The 9% Price Increase Tax
CIOs are bracing for the impact, setting 9% of the IT budget aside for price increases on existing services.
Nine percent of every IT budget in 2025-2026 is being allocated just to pay more for the same software companies already have.
While budgets for CIOs are increasing, a significant portion will merely offset price increases within their recurrent spending, meaning nominal spending versus real IT spending will be skewed, with price hikes absorbing some or all of budget growth.
CIOs surveyed by Gartner at the end of 2024 expect an 8.9% cost increase, on average, for IT products and services.
So out of that stunning 15.2% growth in software spending, roughly 9% is just inflation. That leaves about 6% for actual new spending.
And where’s that other 6% going? Almost entirely to AI.
The AI Application Software Explosion
Here’s where the real money is flowing:
Investments in AI application software, a category that encompasses CRM, ERP and other workforce productivity platforms, will more than triple in that two-year period to almost $270 billion.
AI infrastructure software spending, which includes app development, storage, security and virtualization tools that support IT, is expected to skyrocket to nearly $230 billion in 2026, up from nearly $60 billion last year.
Next year, we’re going to spend more on software with Gen AI in it than software without it, and that’s just four years after it became available.
This is the fastest adoption curve in enterprise software history. Faster than cloud. Faster than mobile. Faster than SaaS itself.
The Mechanism: Buy, Don’t Build
What changed between 2024 and now?
In 2024, enterprises tried to build their own AI. They ran POCs. They hired ML engineers. They experimented with custom models.
Most of it failed.
Expectations for GenAI’s capabilities are declining due to high failure rates in initial proof-of-concept work and dissatisfaction with current GenAI results.
Now they’re done building. Ambitious internal projects from 2024 will face scrutiny in 2025, as CIOs opt for commercial off-the-shelf solutions for more predictable implementation and business value. Despite model improvements, CIOs will reduce POC and self-development efforts, focusing instead on GenAI features from existing software providers.
This is the most important shift in the entire forecast. Enterprises gave up on build. They’re going all-in on buy.
Enterprises purchase most of their generative AI capabilities through vendors.
For B2B companies, this changes everything. You don’t need a custom AI solution. You don’t need to offer POCs. You need to ship AI features into your existing product that create massive ROI. And ship enough real value to charge for them.
Many are still learning. Even Figma still isn’t charging for much of its new AI functionality. That’s a great way to learn. But it’s not capturing any of the IT budget growth that way.
The “Trough of Disillusionment” Paradox
Here’s the weirdest part of Gartner’s data.
Despite being in the trough of disillusionment in 2026, GenAI features are now ubiquitous across software already owned and operated by enterprises and these features cost more money.
We’re past peak hype. Everyone knows AI isn’t magic. POCs failed. Expectations dropped.
And yet spending is accelerating.
Why? Because at this point, NOT having AI features makes your product feel outdated. The cost of software is going up and both the cost of features and functionality is going up as well thanks to GenAI.
AI features have become table stakes, even if the ROI isn’t crystal clear yet. Buyers expect them. Vendors can charge for them. The market has accepted the new pricing paradigm.
Where the AI Budget Is Coming From
Since 9% of budget growth is consumed by price increases and most of the rest goes to AI, where’s the money actually coming from?
Not new allocations. Reallocation.
37% of finance leaders have already paused some capital spending in 2025, yet AI investments remain a top priority.
Cuts seem to be aimed towards low ROI software, nonessential travel and external contractors, while protecting investments in internal automation, cybersecurity and financial system modernization.
54% of infrastructure and operations leaders said cost optimization is their top goal for adopting AI, with lack of budget cited as a top adoption challenge by 50% of respondents.
Translation: Companies are cutting low-ROI software to fund AI software. They’re eliminating point solutions. They’re reducing contractors. They’re reallocating existing budget, not creating new budget.
If your software doesn’t have AI features or can’t demonstrate clear ROI, you’re in the “low ROI software getting cut” bucket.
The Pricing Power Window Is Open Now
Here’s the tactical opportunity for SaaS operators.
The market expects price increases. CIOs expect an 8.9% cost increase, on average, for IT products and services. They’ve already budgeted for it.
Add AI features and you can justify 15-25% price increases on top of that base inflation.
GenAI features are now ubiquitous across software already owned and operated by enterprises and these features cost more money.
But this window won’t last forever. Right now, buyers accept “we added AI features” as justification for price increases. In 18-24 months, AI will be so standard that it won’t justify premium pricing anymore.
The playbook:
- Ship AI features into your core product that are important enough to monetize
- Announce price increases of 12-20% tied to the AI capabilities
- Position the increase as “AI-enhanced functionality” not “price increase”
- Show some cost optimization or efficiency gains if possible
Companies that execute this in the next 6 months will capture pricing power. Companies that wait until late 2026 will find AI features are expected at the base price.
The Budget Flush Is Happening Right Now
The uncertainty pause that began in the second quarter of 2025 started to alleviate in the third quarter and a significant budget flush is anticipated before the end of the year.
Q4 2025 is going to be massive. Enterprises held back spending in Q2 and Q3. Now they’re releasing it before year-end to avoid losing budget allocation.
But: With the replacement cycle unchanged, the stronger performance in 2025 will result in a lower relative growth rate for 2026, as demand has been pulled forward.
What this means:
- Close deals in Q4 2025 if you can
- Q1 2026 may be softer than the growth rate suggests
- The budget is available now, not later
If you’re a SaaS company with AI features ready to ship, launch them before December. If you’re planning a Q2 2026 launch, you’re missing the budget cycle.
What ROI Actually Means Now
54% of IT leaders are focusing on AI projects with attainable results and foreseeable cost savings, with the greatest AI momentum in IT service management and digital workplace functions, where automation and generative AI can directly enhance productivity and reduce costs.
Notice what matters: “attainable results” and “foreseeable cost savings.”
Not transformation. Not innovation. Not “10x productivity gains.”
Real cost savings. Measurable efficiency gains. Headcount reduction.
54% of infrastructure and operations leaders said cost optimization is their top goal for adopting AI.
For SaaS companies, this means:
- Stop positioning AI as innovation
- Start positioning AI as cost optimization
- Show hard ROI numbers, not soft productivity gains
- Demonstrate how AI reduces need for headcount or contractors
The companies winning AI deals in 2026 are the ones that can show CFOs a clear payback period in quarters, not years.
The Reality Behind the 15.2% Growth
So let’s break down that stunning 15.2% software growth:
- ~9% goes to price increases on existing software (AI tax)
- ~4-5% goes to new AI application software purchases
- ~1-2% goes to traditional software growth
The $1.43 trillion software market in 2026 breaks down roughly as:
- $1.2 trillion on software companies already owned (plus price increases)
- $200-230 billion on AI infrastructure and application software
This isn’t a story of massive new software category creation. This is a story of existing software getting more expensive because it now includes AI features.
The cost of software is going up and both the cost of features and functionality is going up as well thanks to GenAI.
What This Means for Your Company
If you’re an incumbent SaaS company:
You’re in the best position you’ve been in years. You have:
- An installed base that expects to pay more
- A market that accepts AI as justification for price increases
- Customers who want to buy AI from you, not build it themselves
- A budget flush happening in Q4 2025
Ship AI features. Raise prices. Capture the moment.
If you’re a non-AI SaaS startup:
You’re facing the hardest market in a decade. You’re competing against:
- Incumbents with pricing power
- Budgets being reallocated away from “low ROI software”
- Buyers who want to consolidate vendors, not add them
- A vertical SaaS market that’s underperforming
Your only path is demonstrating ROI that’s so compelling it justifies ripping out existing software. Or being an AI infrastructure tool that enables other companies to deploy AI.
The Bottom Line
Yes, software spending will grow 15.2% in 2026 to $1.43 trillion. That’s real money.
But 60% of that growth is price increases on software companies already own. Another 30% is AI features being added to existing platforms. Only about 10% is genuinely new software purchases.
Next year, we’re going to spend more on software with Gen AI in it than software without it.
The AI revolution in enterprise software isn’t about new categories or new vendors. It’s about existing software getting AI features and getting more expensive.
The companies that understand this – the ones shipping AI features now, raising prices strategically, and positioning as cost optimization – will capture the $1.43 trillion market.
The ones that miss it will find themselves in the “low ROI software getting cut” bucket as buyers reallocate budget to platforms with AI.
The budget flush is happening in Q4 2025. The pricing power window is open now. The question is whether you’re positioned to capture it.
