How will AI affect the cost of software development in 2026?

Source: Dev.to

Cost Assumptions

• Software engineer salary: $155,000 per year
• AI tooling cost: $1,000 per developer

Productivity Gain Scenario

If AI delivers a 20 % productivity gain, the effective value of the engineer could be viewed as:

• Adjusted salary: $124,000 per year (20 % reduction from $155k)
• Adding AI tooling cost: $124,000 + $1,000 = $125,000

Potential Increase in AI Tooling Costs

Should AI tooling expenses rise to $10,000 per developer, the total cost becomes:

• $124,000 + $10,000 = $134,000 (rounded to $135,000 in the example)

Thus, the overall cost of software development would shift from $155,000 to $135,000, reflecting a transfer of expense from labor to AI tools.

Factors Likely to Increase AI Tooling Costs

• AI model training expenses
• Vendor lock‑in and associated licensing fees
• Rising compute, hardware, and energy costs

Broader Implications

• Revenue is redirected from software developers to AI tooling providers, creating new jobs (including developers) to build and maintain those tools.
• Perceived scarcity may discourage younger talent from pursuing software development.
• Market dynamics such as outsourcing, offshoring, near‑shoring, and remote work continue to shape the software engineering landscape.