Bytes Technology Group PLC: Down to Sell. Incentives to drag as capex surges

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Bytes Technology Group PLC: Down to Sell. Incentives to drag as capex surges

Bytes Technology Group PLC UBS Research

UBS Research THESIS MAP Thesisa guideMapto our thinking and what´s where in this report

Pivotal Questions Q: Will Gen AI be a significant driver of revenue?

Not in the short term. We continue to think Bytes (like most software resellers) will benefit when its

vendors embed AI into their products. While Microsoft is currently allocating a significant amount of

capacity to improve its products, thus far Co-pilot take-up (the most visible AI product within the

portfolio) has been slow so far. Elsewhere, many AI native players (Claude, OpenAI, etc.) sell directly

or through the hyperscaler marketplace rather than resellers. A UBS Evidence Lab survey found that

5% of 2025 IT budgets were spent on AI native startups, and that is expected to grow at a rapid pace.

We think AI displacing other areas of IT budgets (see IBM results) continues to be a sizable risk.

Q: Is there a risk of further incentive changes?

Yes. Hyperscalers are accelerating their capex spend, with UBS' Microsoft analyst Karl Keirstead

expecting Microsoft capex growth of 65% in FY26 and 61% in FY27. Given such capex outlays we

note that the hyperscaler complex is focused on containing costs - with many having announced

headcount reductions already (link and link). While incentive changes has been a drag on broader top

line growth for the resellers for several years now, we note every few years Microsoft materially shifts

incentives (Enterprise agreement tier A and B incentive reduction and level C and D disintermediation

in 2025, incentive reduction in tier Cs and Ds a few years back). We view FY27 Microsoft incentive