Menlo Ventures Reports AI Spend Hits $177 Billion

Menlo Ventures recently released its fourth annual State of Enterprise AI report, which reveals that enterprises will spend $176.8 billion on AI in 2026. This represents a significant increase from $33 billion in 2025, with AI deployment spend now accounting for about 30% of public cloud revenue. The report surveyed roughly 400 U.S. enterprise decision-makers who control more than $4 billion in AI spend.

The report found that 55% of AI spend comes from new budget, while 22% comes from software budgets. The remaining amount comes from labor and other lines. Of the 22% from software budgets, 13 points went to incumbents converting their existing seat licenses into AI products, and 9 points, or $12.6 billion, went to AI-native vendors. This breakdown may have implications for B2B founders and the software industry as a whole.

According to the report, AI cut SaaS growth by about 2 points, from 13% to 11% on a market of more than $600 billion. This translates to roughly $12 billion of growth that did not happen. Menlo Ventures also found that incumbents held or gained share in nearly half the categories they track, with ServiceNow having 91% of AI spend in IT and Workday having 68% in HR.

The report highlights the importance of understanding where AI spend comes from and how it may impact different industries. For example, the average enterprise spent about 2.5x its AI plan, while the median spent about 1.2x. A small group of power users drives the totals, and their spend may be capped by per-seat pricing. Menlo Ventures notes that products priced at 2x or more that customers still buy are being paid for out of the larger budget pools.

Menlo Ventures identified five key takeaways from the report, including the fact that 55% of AI spend is new budget and that products that have to win a software budget are competing for the smallest pool. The report also notes that AI-native vendors received $12.6 billion from software budgets, and that the labor and net-new pools are several times bigger. These findings may inform the strategies of B2B founders and investors in the AI space.

The report provides a detailed breakdown of AI spend by department, with IT, sales, marketing, and HR being among the categories tracked. Menlo Ventures found that incumbents gained ground in nearly half the categories, and that the fastest-growing functions share certain conditions, such as the ability for agents to take action in connected systems. The report also notes that coding is a $34 billion AI category, up 7.7x, and that workplace assistants and chatbots are a $25 billion category.

Looking ahead, the report suggests that enterprise AI adoption will continue to grow, with spend per enterprise nearly quintupling. Menlo Ventures attributes the gap between average and median spend to agents that run in parallel and keep working after the user logs off. The report's findings may have implications for founders and investors in the AI space, particularly with regards to pricing models and the potential for growth in different categories. This article is based on reporting by SaaStr.