TD Cowen 2025 Human Capital Management Survey

Overview:

• Our Human Capital Management (HCM) global survey evaluates 4,670 respondents across small and medium-sized businesses (SMB) , mid-market and enterprise organizations.
• Over the next 12 months, 37% of respondents cited increasing HR tech spend versus just 7% decreasing.
• Outlooks are most favorable for enterprise and midmarket organizations.
• Most respondents expect Artificial intelligence (AI) adoption to have no impact on headcount over the next 36 months.

The TD Cowen Insight

The TD Cowen 2025 HCM Survey (sample size of 4,670) relays consistent HR tech spending growth indications, with nuanced demand but less dire AI-related headcount implications than consensus fears. Data spans spending, vendor switching intentions, vendor satisfaction and more.

Our Thesis

The survey reflects a healthier spend backdrop and a more negligible impact from AI on employment levels than the consensus view, and that may present an attractive rotation opportunity as macro and AI fears wane. We anticipate a gradual deceleration in HCM growth through the second half of 2025 (2H25) before stabilization in the first half of 2026, adjusted for the impact of moderating labor growth, due to the uptick in payroll solution switching and preference for bundled HCM solution purchasing indicated by our survey.

HCM sector coverage has largely underperformed other tech sectors the last approximately two years due to market concerns of a potential recession and moderating labor growth, perceived payroll market saturation and investor aversion to seat-based revenue models. The results of our survey indicate a steady outlook for HR technology spending with pockets of improvement and moderation. This affirms the consensus view that macro is influencing demand for HCM but depicts a nuanced demand environment with spending growth also being driven by the adoption of additional functionality and solutions that increase efficiency and data or analytics capabilities. The data also counters the view of AI driving an overall reduction in headcount by organizations over the medium-term. We believe near-term concerns may ease in the coming months with a stabilization in labor growth.

What Is Proprietary?

Our survey features an updated view on HCM solution spending trends, vendor switching intentions, vendor positioning, buyer behavior and more. The data is primarily focused on payroll and HRMS (Human Resources Management System) offerings and covers the full spectrum of HR buyers as it includes participants across industries and employer size segments.

Financial and Industry Model Implications

Overall, resilient HCM spend intentions and stability in headcount levels in the TD Cowen 2025 HCM survey increase our confidence in modeled near-term growth projections across HCM sector coverage. Our survey reflects fairly consistent growth in HR tech spend over the next 12 months led by enterprise and mid-market organizations, as well as AI having a negligible impact on headcount levels over the medium term.

Over the next 12 months, 37% of all organizations cited increasing HR tech spend versus just 7% decreasing spend; the net spend mix (% increasing less % decreasing) of 31% nearly matches the net 33% from the same respondents for the prior 12-month period. Average HR tech spend growth is projected to down tick modestly to 3.2% vs. 3.5% for the prior 12-month period. However, this is not weighted by employer size segment, which likely understates overall market growth.

Average HR tech spending growth for the next 12 months is most favorable for organizations with over 5,000 employees at 4.8%, followed by 500 to 4,999 organizations at 4.1% and weakest for 1 to 499 organizations (SMB) at 2.5%. Net spending indications differ as the mid-market leads at 40%, followed by enterprise at 38% and SMB lagging at 26%.

The global HCM software and services TAM (Total Addressable Market) is conservatively estimated at over US$180 billion. The 3% growth in HCM spend implied in our survey over the next 12 months is modestly below global market growth estimates in the mid-single digits cited by leading vendors like ADP. However, several of the HCM vendors under HCM sector coverage are growing well in excess of that growth rate demonstrating ongoing share shifts and favorable relative exposures, and we do not see that dynamic changing over the medium-term.

The majority of respondents expect the adoption of AI or machine learning (ML) by their organizations to have no impact on headcount over the next 36 months with a net increase projected led by midmarket at 7%, enterprise at 6% and SMB at 5%. This view aligns with organizations that pointed to decreasing headcounts over the next 12 months, the impacts of AI were only a top-five cited driver to declining headcount in the enterprise (4th) while it ranked 8th in SMB and mid-market.

What To Watch

The upcoming third quarter earnings period is the next milestone that may confirm our thesis. Updates across coverage will detail progress on the key Fall selling season to gauge how demand levels and potential switching for payroll vendor/offerings compare versus indications relayed by survey participants. Monthly employment data releases have reflected recent moderating trends; these reports will remain key to watch for signs of private employment growth stabilization.