---
title: "AI Spend Hits $177 B, Yet Only 22% Comes From Software Budgets"
slug: "ai-spend-hits-177-b-yet-only-22-comes-from-software-budgets"
date: "2026-11-05"
category: "MarTech"
author: "Chloe Duval"
correspondent: "Chloe Duval"
correspondentRole: "GTM & Outbound Investigative Reporter"
readingTimeMinutes: 3
tags: ["MarTech"]
originalSourceUrl: "https://www.saastr.com/ai-spend-hit-177-billion-this-year-only-22-of-it-came-out-of-software-budgets/"
canonicalUrl: "https://aurav.ae/ai-spend-hits-177-b-yet-only-22-comes-from-software-budgets"
publisher: "Aura-V Intelligence (aurav.ae)"
---

# AI Spend Hits $177 B, Yet Only 22% Comes From Software Budgets

> Menlo Ventures’ State of Enterprise AI report shows most AI dollars flow from new or labor budgets, not traditional software lines.

## Key Takeaways (TL;DR)

- 55% of AI spend is net-new budget, leaving only 22% in software allocations.
- AI-native vendors captured $12.6 B of the software-budget slice, while incumbents kept the rest.
- AI adoption pushed overall SaaS growth down from 13% to 11% on a $600 B market.

Menlo Ventures’ fourth annual State of Enterprise AI report estimates total AI deployment spend at **$176.8 billion for 2026**, a 5.4-fold increase from 2025 [Menlo report](https://www.saastr.com/ai-spend-hit-177-billion-this-year-only-22-of-it-came-out-of-software-budgets/). The allocation split shows **55% net-new budget**, **22% from existing software budgets**, and the remaining **≈23% from labor and other lines**.

### Software Budgets Favor Incumbents
Of the 22% sourced from software budgets, incumbents converting seat licenses into AI products claimed **13 points**, while AI-native vendors secured the remaining **9 points**—equating to **$12.6 billion**.

### AI Dampens SaaS Growth
Menlo estimates AI reduced overall SaaS application growth from roughly **13% to 11%** on a market exceeding **$600 billion**, shaving about **$12 billion** of potential growth. According to the report, the categories priced per human seat — CRM, sales, marketing and collaboration — are the ones that slowed. Menlo found little evidence that enterprises are replacing their systems of record (CRM, HRIS, ERP) with AI; those systems are staying, and what is shifting is how much new budget goes to them and how much goes to tools built around them.

### Incumbents Capture Departmental Spend
Tracking AI spend by function, incumbents dominate where they already own the workflow and data. **ServiceNow controls 91% of AI spend in IT**, and **Workday holds 68% in HR**. The report shows incumbents gained ground in nearly half the categories Menlo tracks.

### Disproportionate Enterprise Spending
The survey of roughly **400 U.S. enterprise decision-makers**—who collectively control over **$4 billion** in AI spend—reveals a wide variance between average and median spend. The **average enterprise spent 4.7 ×** its prior-year AI budget, while the **median spent 2.2 ×**, indicating that a small cohort of power users drives the headline totals.

### Labs Command the Majority of Deployment Dollars
Anthropic, OpenAI and Google together captured **$122.7 billion**, or **69% of deployment spend**, up from 50% a year earlier. AI-native companies overall hold **77% of application spend** (up from 63%) and **90% of infrastructure spend**. Excluding the labs, startups still hold **61% of app spend**.

**A disclosure for reading the report**: Menlo is an investor in many of the companies it covers, including Anthropic, OpenRouter, Lovable, Factory, Fireworks, Modal, and OpenEvidence. The budget-source, overspend, and departmental figures come from Menlo’s survey of 400 enterprise decision-makers. The agent-versus-human token figures come from OpenRouter, whose users skew toward developers and startups.

## Aura-V Editorial Verdict

The report highlights a heavy reliance on budget sources outside traditional software lines. Incumbent vendors continue to dominate the software-budget portion of AI spend.

---

*Original Think-Tank Source: [AI Spend Hit $177 Billion This Year. Only 22% of It Came Out of Software Budgets.  The 4th Annual State of Enterprise AI Report from Menlo Ventures,](https://www.saastr.com/ai-spend-hit-177-billion-this-year-only-22-of-it-came-out-of-software-budgets/)*