Global GenAI spending to hit $644 billion this year, Gartner says

Global spending on generative artificial intelligence (GenAI) is projected to reach $644 billion this year—a 76.4% increase from the previous year, according to a new forecast released by Gartner.

The significant rise comes despite growing concerns around GenAI’s effectiveness and high failure rates in initial proof-of-concept (POC) projects.

Expectations for GenAI’s capabilities are on the decline, largely due to dissatisfaction with early outcomes and frequent failures in trial implementations, said John-David Lovelock, distinguished vice-president analyst at Gartner.

However, foundational model providers continue to invest billions of dollars every year in scaling and improving GenAI’s performance, size, and reliability, he added.

“Ambitious internal projects from 2024 will face scrutiny in 2025, as CIOs opt for commercial off-the-shelf solutions for more predictable implementation and business value. Despite model improvements, CIOs will reduce POC and self-development efforts, focusing instead on GenAI features from existing software providers,” Lovelock said.

Last year, several organizations launched bold internal GenAI projects in a bit to utilize the technology for custom business applications, according to the report.

However, this year is expected to be a turning point, as CIOs begin to pull back from in-house development and proof-of-concept projects.

Instead, they are increasingly turning to commercial, off-the-shelf GenAI solutions integrated into existing enterprise software.

According to Lovelock, CIOs now prefer more predictable, scalable, and stable GenAI features that are part of established software ecosystems instead of investing in experimental tools that often fail to meet expectations.

The report also showed that GenAI spending will significantly increase across all major segments of the IT market, including services, software, devices, and servers.

Hardware will dominate this growth, accounting for nearly 80% of all GenAI spending this year. This includes everything from smartphones and computers to servers optimized for AI workloads.

According to Gartner, the GenAI market’s course is being shaped primarily by the increasing presence of artificial intelligence (AI)-enabled devices.

By 2028, nearly all consumer devices are expected to come embedded with AI capabilities.

Interestingly, Lovelock noted that consumer demand is not what’s driving this AI hardware boom.

Instead, consumers are being nudged into adopting AI as manufacturers continue embedding it as a standard feature in their products. He explained that people are not actively seeking AI features but will end up buying them as part of their next device upgrade simply because AI is becoming an industry standard.

The findings will be a key point of discussion during the upcoming Gartner IT Symposium/Xpo.

Despite current challenges and a growing sense of caution, the report stated that GenAI is poised to have a transformative impact on every part of the IT spending ecosystem.

Lovelock said that it’s normal for new and powerful technologies to face early problems, even while companies keep investing in them for the future.