Software development and tech services in the cross-hairs as AI marches on

Forrester's latest research warns that software development and tech services industries face significant disruption from AI advancements. Labor-intensive knowledge work will be hardest hit, but even enterprise software is expected to undergo substantial changes rather than being completely replaced. Only three technology sectors—infrastructure, data and AI, and security—are well-positioned for growth.

Forrester highlights that business applications, governance, compliance, process automation, and customer experience will be heavily impacted by AI-driven workflow and user experience transformations. The report stresses that embedded workflows, regulatory demands, switching costs, and increasing demand for data, orchestration, governance, and trust capabilities will help these categories remain relevant despite the disruption.

Specifically, application development and software as a service are particularly vulnerable, including tools for application generation, low-code platforms, autonomous testing, content management systems, digital experience platforms, knowledge management solutions, and enterprise architecture management suites. These technologies are directly affected by generative AI code development.

IT services are also at risk, with AI reducing core implementation work and causing headwinds for vendors implementing Oracle, Salesforce, SAP, and Workday. The outsourcing industry, in particular, will see reduced rates for low-value services, testing, and software development. The massive investment in AI, including large-scale datacenter construction plans, is expected to boost the total IT market to $6.37 trillion by 2026, a 34.7% increase year-on-year.

Most of this growth comes from within the technology sector, which is projected to spend around $1 trillion, up 34.7% from previous estimates.