SOFTWARE & IT SERVICES REPORT 1H 2026

• The sprawling world of software, tech, and IT has found itself increasingly drawn into the gaping maw of AI as it inhales investor interest (and money) at the expense of seemingly every other area.

• When (or if) will the billions invested in AI development pay off? Is there a clear path to profits, and what will separate winners from the also rans?

• Governments across the U.S. and around the world are only starting to develop regulations, both from an AI use standpoint but also regarding AI’s giant data center build and electrical grid demands.

If we’re going to talk about a proverbial “elephant in the room,” it’s important to understand elephants. They eat a lot, ingesting hundreds of pounds of forage daily from the grounds around them. But there’s a lot of inefficiency, too. Elephants may only digest and extract energy from less than a quarter of that input. 1

Now, change “elephant” to “Artificial Intelligence.” AI is gobbling investments at an astounding rate, a vortex luring away investment from other ventures in the software, tech, and IT sector. A Stanford University study found heading into
2025 the AI sector attracted $252 billion in private investment in the prior year. And it’s not just money, AI is capturing up a lot of attention. Nearly 80% of organizations reported trying to integrate AI at the start of the year. Tech’s big dogs – Meta, Alphabet, Amazon, and Microsoft – were expected to pump nearly $400 billion into AI development in 2025. As the Wall Street Journal points out, that’s more than the cost of the Apollo space program … in today’s dollars. Nearly half of available VC money is going into AI-related ventures, with most of that in large language model (LLM) projects. As VC megadeals flowed into AI enterprises, Forbes magazine proclaimed, “The gold rush is back – only this time, the gold is AI.” 2,3,4,5,6

But there are questions. Is this sustainable? When will AI generate anticipated profits and investor returns? Will enthusiasm turn into a bursting bubble? In the current feeding frenzy, it’s estimated the amount of money pouring into AI, research, and related data center development eclipses the amount that was piling into the dot-com bubble of the late 1990s and early 2000s. 4

Even as he announced his $6.2 billion 2025 cash infusion for his “real-world application” AI startup, dubbed Project Prometheus, old school dot-com billionaire Jeff Bezos also mentioned the “b-word,” bubble.

And it’s not just private VC money at stake. Emerging AI power CoreWeave’s 2025 IPO marked the biggest public tech investment since 2021. Share prices doubled in less than a year. But the former crypto-mining company is billions in debt and isn’t turning a profit, generating $5 billion in annual revenue but spending $20 billion to get there. There’s that old saying about a business selling dollar bills for 75 cents but making it up on volume. There is also scrutiny of “circular funding” where big companies invest in startups who then turn around and buy their products – in this case computer chips – from the same firms who lent them the money they are spending. And we’re hearing curious talk of off-book joint venture (JV) accounting, such as when Meta partnered with alternative-asset manager Blue Owl Capital on a $27 billion loan, the largest private credit transaction ever. Did that muddy the financial picture for investors? As AI booms at the cost of other tech enterprises, what’s real growth and what’s the same money moving in circles? Here’s to clarity, and dare we hope profits, ahead. Global consulting firm McKinsey & Company breaks down AI investment into five components: builders, energizers, tech developers, operators running the components, and the AI architects training the models and linking the pieces. That money is going somewhere. Somebody is getting paid. 7,8,9,10,11

There’s no question about the volume of money pouring into AI investments. In 2025, spending on the data centers at the heart of the AI boom exceeded the mighty everyday American consumer, long counted on as the driver of the U.S. economy. And there’s apparently no stopping the demand for AI-related cash inputs. By one estimate, it’s expected by 2030, now less than half a decade away, 24/7 global data center operations – including the energy needed to run them as well as hardware, processing chips, memory, and storage – will require $6.7 trillion to keep up with demand. If investors and entrepreneurs are going to pile in the money, it makes sense to do so with some careful calculations. Deciding where to deploy capital is challenging even the biggest players. There’s an awful lot being put into AI capacity, but it’s difficult to parse out the end product and profitability .11,12,13

Academics and investors can argue about the future of AI at length. Sundar Pichai, the leader of Google parent Alphabet, told the BBC the rise in AI investment is an “extraordinary moment,” then added there is a degree of “irrationality.” Nota word investors may want to hear. Share prices for Alphabet roared throughout 2025 as investors flooded to support its AI potential. Never mind the ghosts of dot-com booms past. Recall then-Fed chair Alan Greenspan’s 1996 warning of “irrational exuberance.” It’s hard to say, are some company’s the next crash-and-burn Pets.com, or are some the next Amazon? 14,15

And unlike the early days of internet search tech where one player, Google, emerged as a big winner (so long Ask Jeeves, AltaVista, and Lycos), AI may not produce a single big winner. Different platforms may chart different paths and find different areas of specialty and success. Maybe tomorrow’s platforms won’t need to desperately battle for everyone’s attention, just the users they focus on. In the search engine wars, Microsoft hilariously paid to place it’s “Bing” search engine into mentions on the TV remake of Hawaii 5-0 when detectives would tell someone to “just Bing it” as a replacement for “Google it.” Nobody says that. 16,17

There’s nothing wrong with investment in the next big thing. And, as Wharton professor and researcher Itay Goldstein points out, not all bubbles are alike. The notorious dot-com bubble may have stung investors and venture capitalists, but regular people may have hardly noticed, it was all numbers. On the other hand, the housing bubble of the latter 2000s hit folks where they live. Literally. It became personal. Exuberant investment may lead to life-changing innovation, but it may also depend on who is impacted. Harvard Business School professor Andy Wu noted there’s plenty of potential for growth and profit, but there’s also a lot of leakage, commenting, “While generative AI can do amazing things, it is also perhaps the most wasteful use of a computer ever devised.” Ouch. 18,19

Who’s making money – actual profits – today? It’s hard not to recall the old “picks and shovels” saying about gold rushes. The miners may not all strike paydirt, but those selling picks and shovels to the dreamers pocketed real cash in real time. While there are already data-driven sectors successfully employing and finding use for AI such as healthcare, finance, legal services, and supply chain management, all that data center construction and chip manufacturing facility building is pocketing plenty of investment cash. Data center construction contractors and tangential services are loaded with blue-collar, hard hat workers making six figures. While tech monsters such as Amazon, Google, and Microsoft are already managing more than 500 AI data centers, nearly that many new centers are in development. Picks and shovels. 20,21,22,23,24

And then there’s the movement’s insatiable demand for electricity. Data center electricity consumption has grown by 12% – per year – over the past five years. Data centers suck up a lot of power, more than the demand from the growth of electric vehicle usage, hydrogen production, or even homes. Within a decade it’s expected data centers alone will inhale more than 8% of all the electricity produced in the United States. Adding the necessary juice to the grid is big business across gas, solar, and wind plants. Someone’s building that capacity. Meta – the parent of Facebook and Instagram – is about to become one of the world’s largest corporate buyers of nuclear power with agreements tallying up to 6 gigawatts, enough to run a city of 5 million. Microsoft caused a splash in 2024 when it inked a deal to reopen a Three Mile Island nuclear generator to run its data centers. 25,26,27,28,29,30

Will the AI industry generate profits or is it a bubble? Who knows. But for investors, there are opportunities taking into account the middle market AI-adjacent businesses in hardware, electrical development, construction, real estate, and logistics. That capital input is going into someone’s bottom line. The smartest investors are finding out where and how it makes sense to get in.

While AI is eating an enormous amount of our collective imagination – and our investment dollars – there is more to life in the tech, software, and IT world. Robotics are not a “what if” industry, the sector is part of our daily lives if we know it or not. And the gadgets that make life better from smart rings to whisper-thin televisions to laser-guided lawn mowers are making their way to the real world. Amazon in 2025, already a leader in robotics integration, announced it had deployed its one millionth inventory management and shipping robot. If you bought it, a robot brought it. Now imagine autonomous robots smaller than a grain of sand developed for intricate manufacturing or medicine, because those are already in development. 31,32,33,34

Another intriguing area is in autonomous vehicles. Driverless taxis and trucks. Already on the ground in American cities, there are those predicting the availability for autonomous driving in the U.S. will accelerate rapidly, from availability to about 15% of urban dwellers at the close of 2025 to more than 30% in the coming year, led by now household names such as Alphabet’s Waymo, Amazon’s Zoox, and Tesla. And this isn’t a U.S.-centric market, it’s global. Autonomous trucking, too, is on the move, with long-haul autonomous shipping routes starting operation in 2025. To stay within mobility tech, electric and autonomous air travel – both air “taxis” and freight – continue to evolve. It’s key to remember, not everyone involved in the evolution in tech is a deep-pocket, venture capital-fueled, pie in the sky startup. For every fleet of autonomous taxis and trucks, there are middle market opportunities for those who monitor, wash, vacuum, repair, and maintain them. 35,36,37,38,39

• In October the Artificial Intelligence Infrastructure Partnership (AIP), a conglomerate of household names in AI development including Nvidia, Microsoft, Elon Musk’s x AI, and Blackrock, pooled $40 billion to purchase Aligned Data Centers, which operates data centers across North and South America. Aligned was owned by Macquarie Asset Management through two privately managed infrastructure funds. A news release called it the largest global data center deal ever. It was the first acquisition for the one-year-old AIP. Aligned is headquartered in Dallas and operates about 50 data centers in the U.S., Mexico, Brazil, Chile, and Colombia. 40,41

• California-based semiconductor and wireless tech software company Qualcomm in July moved to diversify its business into data center markets with the $2.4 billion acquisition of British startup Alphawave Semi. Founded in 2017, Alphawave is a leader in high-speed connectivity for data centers, AI, wireless, and autonomous vehicles. The sale is seen to fill Qualcomm’s gap in data center connectivity and intellectual property. Announcing the deal, Qualcomm reported, “The combination of Qualcomm and Alphawave Semi creates a leading player in AI compute and connectivity solutions for a wide array of high growth areas, including data center.” 42,43

• Global IT and cybersecurity company Abacus Group made a couple of interesting moves over the year acquiring Entara, itself a managed IT and security service provider in June and then merging with Medicus IT in July. Abacus reported the Entara acquisition adds to its “global reach and capabilities across cybersecurity, professional services, and digital infrastructure.” In the Abacus and Medicus IT merge, the companies said the combination creates the “leading financial services and Healthcare-focused IT managed services platform.” Both Abacus and Medicus are portfolio properties of the San Francisco based private equity firm FFL Partners. Financial terms were not disclosed. 44,45

For starters, we’ll be watching not just investment in AI, but end results and functional applications. It will be interesting to see where, or when, AI turns from a spend to a profit. There are some saying it won’t be in this decade, and that opens the question of investor pain tolerance and patience. It will be interesting to see if some players simply don’t have the gas to get to the finish line and if that will lead to consolidations. Certainly the deepest pockets have money to burn, but will investors keep buying? Perhaps it’s not unusual for early-stage tech to not deliver early-stage profits, but what is unusual is the massive scale of the investment in AI. It’s a huge bet with consequences if it doesn’t pay off and opportunities for those who make the right moves. 46,47

Also at stake, amid the focus on AI, is investment in other emerging technologies. It wasn’t long ago we were buzzing about quantum computing. Breakthroughs are still happening, it’s just that AI seemed to get all the attention. But that, too, requires funding and a bet on the long game. Robotics, cyber security, workforce training and management, infrastructure needs, and consumer demands are all tugging at the tech blanket making it a fascinating and challenging sector for investors. 48,49,50,51

Regulation, as well, deserves attention. Elon Musk’s X platform got into hot water in 2025 when its AI tool Grok allowed users to generate non-consensual “intimate” images of platform users, and there are those asking of these acts meet the level of criminal offenses and under what laws. In 2025 all 50 states introduced some form of AI-related regulatory proposals. The White House has its own ideas on managing, or overruling, state regulations. The European Union is also in a tug of war over AI regulation. Florida kicked off the new year with a measure, backed by its governor, to regulate data center locations and bar utilities from passing along fees to consumers to pay for data center-related costs. 52,53,54,55,56,57

The silicon landscape is shifting at an amazing rate. But for those savvy enough to chart a path, there is a lot of available investment and opportunity. Not everyone will be direct players in the AI universe. But for middle market and lower enterprises, it’s important to remember that for every data center, someone did the HVAC work and poured the concrete. For every new AI model, someone has developed a business to train it. For every increase in electrical demand, someone built, installed, and will maintain the grid expansion. For each AI computing breakthrough, someone is finding ways to incorporate that power and commercialize it through everyday office software. 58,59

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