Artificial intelligence is widely regarded as the transformative technology of our time, shaping industries, economies, and societies at an unprecedented pace. The same holds true for the U.S. public sector. Federal agencies are moving beyond experimentation toward scaled AI deployment, with reported AI use cases more than doubling from 1,757 in 2024 to 3,611 in 2025 across 56 agencies.

Deltek recently released its Federal Artificial Intelligence Market, 2026-2029 report, examining the policy, budget, and acquisition forces driving federal AI adoption.

Analysis shows federal prime contract obligations for AI grew 35% between FY 2023 and FY 2025, with spending highly concentrated (97%) within the top 10 federal departments. Small business and SBIR/STTR AI awards also expanded in that time period.

Emerging AI technologies are positioned to expedite the delivery of advanced capabilities to operational users, including warfighters, intelligence analysts, and law enforcement personnel. Pre-negotiated pricing agreements and secure testing platforms further empower agencies to rapidly acquire, evaluate, and scale AI capabilities across mission environments.

Agentic AI and AI-driven cybersecurity are identified as key areas of near-term growth, alongside rising investment in cloud, compute, storage, and data infrastructure to support that adoption.

Accordingly, Deltek projects that federal spending on AI and AI-related technologies will grow from $2.8B in FY 2026 to $3.9B in FY 2029, representing a 28% increase over the four-year period. Note that this forecast excludes spending within the intelligence community.

Source: Deltek

Key findings in the report include:

• Federal AI Expansion. Increasing AI adoption is a common priority across federal agencies, although progress remains varied based on organizational maturity. Agencies with robust data environments, strong governance frameworks, and an AI-ready workforce are best positioned to succeed in an evolving AI landscape.
• Concept to Implementation. Federal agencies are moving beyond AI experimentation and toward scaled AI deployment, integrating AI capabilities into both core mission operations and enterprise functions.
• Congressional Attention. Artificial intelligence continues to be an active area of legislative attention, reflected in the large volume of AI-focused legislation introduced during 2026.
• AI Enabling Technologies. Federal agencies’ rapid adoption of AI is driving increased investment in supporting technologies, including cloud infrastructure, data management, compute resources, storage, and network capacities.
• Agentic AI and Cybersecurity. Agentic AI and AI in cyber operations are expected to be key areas of technological advancement at federal agencies. The growing role of AI in cybersecurity is driving federal demand for solutions that enhance cyber resilience while addressing the risks posed by increasingly sophisticated AI-enabled threats.
• Defense, Intelligence and Civilian Agency Applications. Defense agencies continue advancing AI capabilities for warfighter support, while civilian agencies focus on productivity, customer experience, and fraud prevention. Agentic AI adoption is expected to expand across the intelligence and national security communities to enable advanced analysis, decision support, and task automation.
• Concentrated Spending Patterns. AI spending remains concentrated, with 97% of prime contract spending in the top 10 federal departments.
• Evolution of AI Opportunities. While AI was once typically acquired as part of broader IT efforts, agencies are increasingly procuring AI capabilities as standalone requirements.
• AI in Acquisition. As agencies embed AI throughout the acquisition lifecycle, federal procurement is both a driver and a beneficiary of AI adoption.

Deltek’s Federal Artificial Intelligence Market, 2026-2029 report offers a comprehensive examination of the key trends and catalysts shaping the expansion of the federal artificial intelligence market.