2026 Allocation Shift

Software vs Hardware in the IT Budget

Software (including SaaS, cloud, perpetual licences) now accounts for roughly 70 percent of typical IT budgets versus 30 percent for hardware in 2026. The ratio has inverted since 2010, driven by SaaS adoption, cloud migration, security stack expansion and AI-embedded tooling.

Software Share (2026)

70%

SaaS, cloud, perpetual licences, AI assistants

Hardware Share (2026)

30%

End-user devices, networking, residual servers

The Inversion: 2010 to 2026

In 2010, the typical enterprise IT budget allocated roughly 40 percent to hardware (servers, networking, storage, end-user devices) and 25 percent to software (perpetual licences, plus enterprise software like SAP and Oracle that bundled licence and support). The remainder went to personnel and services.

By 2026 the proportions have flipped. Gartner's 2026 IT spending forecast reports software growing at 13 percent year-on-year while devices grow at 18.6 percent (mostly due to the AI PC refresh cycle, an unusual one-off bump). Across the trend window, software has consistently outgrown hardware for over a decade.

For budget planners, the implications go beyond the topline number. Software contracts now warrant the procurement intensity that hardware contracts used to receive. Multi-year deals, price-cap clauses, ramp-down rights, swap rights, audit reciprocity and renegotiation triggers should all be standard procurement practice for any software contract above the company's materiality threshold (typically $100,000+ annually for mid-market, $1M+ for enterprise).

Five Forces Driving the Shift

SaaS replaces perpetual licences

Largest single shift. Microsoft 365, Salesforce, Adobe, Atlassian, ServiceNow now per-seat per-month rather than upfront perpetual.

Perpetual licences were CapEx, depreciated over 3-5 years. SaaS subscriptions are OpEx, recur annually with 8-15 percent renewal increases. Same software, very different budget treatment and total cost over a 5-year horizon.

Cloud replaces infrastructure CapEx

Servers, storage, networking gear that was CapEx is now consumed as cloud OpEx.

AWS, Azure, GCP convert what would have been depreciated capital into a usage-based service. Hardware suppliers (Dell, HPE, Cisco) lost share to hyperscalers' custom hardware.

AI-embedded features and AI assistants

Adds $20-$60 per user per month on top of base seat costs in M365, Salesforce, Adobe and others.

Microsoft Copilot at $30/user/month, Salesforce Einstein, Adobe Firefly, GitHub Copilot, Notion AI. None of this has a hardware analogue. All adds to the software side of the budget.

Security stack expansion

From 3-5 security products in 2015 to 10-20+ in 2026.

EDR, MDR, SIEM, SSE, identity governance, compliance automation, security awareness, breach simulation, attack surface management. Each is a separate software contract.

Specialised tooling per department

Marketing, sales, finance, HR each running 8-15 specialised SaaS apps.

In 2010 most departments shared a small set of enterprise tools. In 2026 each department runs a portfolio of best-of-breed SaaS, often procured outside IT (which surfaces in the SaaS sprawl problem).

Software vs Hardware Split by Industry

The cross-industry average masks important variation. Industries with significant physical infrastructure (manufacturing, retail, education) carry more hardware. Cloud-native and knowledge industries (SaaS, professional services) skew almost entirely software.

Industry	Software Share	Hardware Share	Notes
SaaS / technology	85 - 92%	5 - 10%	Almost no on-prem hardware. Premium engineering devices the only meaningful hardware line.
Financial services	65 - 72%	13 - 18%	Core banking software dominant. ATM and branch networking on the hardware side.
Healthcare	70 - 78%	15 - 22%	EHR licensing is the dominant software line. Medical device integration adds hardware.
Professional services	70 - 78%	12 - 18%	M365, CRM, knowledge management, AI assistants. Standard knowledge-worker hardware.
Retail (omnichannel)	55 - 65%	18 - 25%	POS hardware, in-store devices, networking are large lines. E-commerce platform on software.
Manufacturing	50 - 60%	22 - 28%	ERP and PLM software substantial. OT equipment and plant infrastructure on hardware.
Education	55 - 65%	18 - 28%	LMS and student systems software. Student devices, campus networking are hardware-heavy.

Industry splits triangulated from Gartner IT Key Metrics Data per-industry summaries and IDC Worldwide Quarterly tracker data.

What the Shift Means for Budget Planning

Three practical implications for IT budget planning in 2026:

Forecast accuracy is harder. Hardware budgets had multi-year capital plans with predictable depreciation. Software budgets ride per-seat licences (which scale with headcount changes), annual renewal price increases (often 8-15 percent), and consumption-based cloud (which can drift). Budget owners need rolling forecasts rather than annual plans.
SaaS portfolio management is a real discipline. The 50 to 200 SaaS applications running at most mid-market enterprises need active inventory, contract management, usage analysis, and renewal pipeline. Vendors like Zylo, Productiv, Vendr, BetterCloud and the IT-procurement-as-a-service category exist because most companies cannot manage a 200-app portfolio with spreadsheets.
CapEx-heavy IT investments are now the exception. Most new investment is OpEx (cloud, SaaS, services). The exceptions are end-user device refreshes, security hardware (firewalls, network segmentation gear), and any specialised infrastructure (HFT, OT). CFOs who plan IT capital cycles should expect those cycles to be smaller than they were a decade ago.

IT Hardware Budget

The 30 percent that is left, deep dive.

CapEx vs OpEx

The accounting dimension of the same shift.

Cloud Spending

Where the on-prem hardware spend went.

Full Budget Breakdown

Five-category allocation context.

Manufacturing IT Budget

Where hardware still dominates at 22-28 percent.

SaaS IT Budget

Where software is 85-92 percent of IT.

See your own software/hardware split

The calculator categorises your IT budget into the five standard buckets, including the software vs hardware breakdown.

Use the IT Budget Calculator

Frequently Asked Questions

What is the software vs hardware split in IT budgets?

In 2026, software (including SaaS, perpetual licences, and cloud services) accounts for roughly 65 to 75 percent of IT budgets at typical mid-market enterprises. Hardware accounts for 15 to 20 percent. The remainder is personnel and services. The split has inverted from the 2010 era when hardware was the dominant line. The driver is the cloud and SaaS shift, which converted infrastructure CapEx and perpetual software licences into subscription OpEx.

Has software always been the larger spend category?

No. In 2010, hardware accounted for roughly 35 to 45 percent of IT budgets at typical enterprises, and software (including licences) accounted for 25 to 30 percent. Servers, networking equipment, storage arrays and end-user computing dominated. Per Gartner historical data and IDC tracker series, the inversion happened gradually between 2014 and 2022, accelerating sharply between 2018 and 2022 as SaaS adoption matured and cloud-first IT strategies became standard.

Why has software grown so much faster than hardware?

Five forces. First, the SaaS shift converted perpetual licences into per-seat subscriptions that scale with headcount and grow on annual price increases. Second, cloud computing converted infrastructure capital into operating expense. Third, the proliferation of specialised tools (each department has its own SaaS stack) increased software unit count significantly. Fourth, security tooling has expanded from a few products to a 10-20 layer stack. Fifth, AI-embedded SaaS and AI assistants are adding $20-$60 per user per month on top of base seat costs, with no equivalent hardware line.

Is the split the same for every industry?

No. Manufacturing and retail run more hardware-heavy because of physical infrastructure (POS, OT equipment, plant networking). SaaS and technology companies run almost entirely software because product runs in cloud and there is no on-premise estate. Healthcare runs unusually high software because EHR licensing alone consumes 30+ percent of their IT budget. Financial services is closer to the cross-industry average because of dual core banking modernisation (software) and ATM and branch infrastructure (hardware).

Should we negotiate software contracts differently because they are now larger?

Yes, and most companies do not. Software contracts have eclipsed hardware as the largest line items in many IT budgets, but procurement processes are often still designed for hardware. Specifically: longer-term software contracts (3-5 year) for predictable spend, ramp-down clauses for shrinking headcount, price-cap clauses for annual renewal increases, swap rights between products in a vendor portfolio, and audit rights that match what the vendor demands. The software vendor benefits from frictional renewal pricing; sophisticated IT procurement systematically erodes those frictions.

What about the personnel and services line?

Personnel and services together typically account for 25 to 35 percent of IT budgets in 2026, separate from the hardware versus software split. This page focuses on the technology spend (hardware plus software) for clarity. When all five categories are combined: personnel 28-32 percent, software/SaaS 26-30 percent, infrastructure/cloud 20-24 percent, security 10-14 percent, support/other 7-10 percent. See the full budget breakdown page for that view.