FY27 budget conversations are wrapping up at large enterprises. We spent the last three weeks talking to CIOs and IT budget owners at companies ranging from $500M to $10B in revenue. Here’s what’s actually happening to the AI line items.
What’s getting cut
The first wave of generative AI tooling — broad productivity subscriptions, internal chatbot projects, “AI centers of excellence” that produced PowerPoint decks without shipping product — is getting defunded aggressively. The phrase we heard most often: “We can’t quantify the ROI.” That’s the death sentence for an AI line item in FY27.
Pilot programs that haven’t converted to production deployments after 6 months are also under intense scrutiny. One CIO described a policy of “automatic sunset”: any AI pilot that hasn’t identified a clear production owner and a measurable outcome metric by the 6-month mark is killed, full stop. We expect that to become standard practice at large enterprises over the next 12 months.
What’s getting doubled
Two categories are receiving meaningful budget increases: code assistance tools and document processing automation. Both have shown quantifiable productivity improvements. Code assistance is the most consistent story we heard — development teams using AI-assisted coding tools are shipping 20–35% more features per sprint, and that number is defensible to a CFO. Document processing automation (contract review, regulatory filing, data extraction from unstructured sources) is following close behind.
The “run-the-business” shift
The most significant structural change: AI is moving from the innovation budget to the run-the-business budget at a meaningful number of large enterprises. This matters because innovation budget is discretionary and the first thing cut in a downturn. Run-the-business budget is recurring, contractual, and defended by the operational teams that depend on it.
The implication for vendors: if your product is sitting in a CIO’s innovation portfolio and you haven’t been explicitly moved into an operational line item, that’s a vulnerability. The question to ask your champion is: “What team owns the operational budget for this?” If the answer is “we don’t have one yet,” start working on it before the next budget cycle.
What this means for the market
The 2024–2025 AI investment wave was characterized by “let a thousand pilots bloom.” FY27 is the year the harvest happens. Products with clear ROI stories in production environments will attract 2–3x the budget they had last year. Products still in pilot will mostly be cut. The middle ground is disappearing.