Global spending on generative AI is expanding fast: no surprise there, given the expectations being placed on the technology to revolutionise our work and home lives. Research and advisory firm Gartner has just put out a note in which it estimates GenAI spending will total $644 billion in 2025, up 76.4% from 2024.
Gartner says GenAI spending is poised for significant growth across all core markets and submarkets in 2025 and is set to have a transformative impact across all aspects of IT spending markets, becoming increasingly integral to business operations and consumer products.
But the researchers have words of caution for enthusiastic investors in GenAI.
John-David Lovelock, an analyst at Gartner, says in the note that, while foundational model providers continue to invest billions annually to enhance GenAI models’ size, performance, and reliability, the industry has faced some setbacks.
“Expectations for GenAI’s capabilities are declining due to high failure rates in initial proof-of-concept [POC] work and dissatisfaction with current GenAI results,” he says.
Lovelock believes this could result in increased scrutiny for projects being developed internally by companies. Instead, they may 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,” he says.
In terms of specific areas driving growth, Gartner says GenAI spending in 2025 will be driven largely by the integration of AI capabilities into hardware, such as servers, smartphones and PCs, with 80% of GenAI spending going towards hardware.
Lovelock says that the market’s growth trajectory is heavily influenced by the increasing prevalence of AI-enabled devices. Gartner forecasts such devices will comprise almost the entire consumer device market by 2028.
Even though consumers are not chasing these features, they will be forced to purchase them, as the manufacturers embed AI as a standard feature in consumer devices, he says.
Top-down process
In a recent survey, consultancy McKinsey also found the use of GenAI and analytical AI was building momentum, and that companies with at least $500 million in annual revenue were changing more quickly than smaller organizations.
The latest McKinsey Global Survey on AI found that that organizations were taking steps to “drive bottom-line impact” from AI, such as redesigning workflows as they deploy AI and putting senior leaders in roles to oversee AI governance.
“The more we see organisations using AI, the more we recognize that it takes a top-down process to really move the needle,” says Alexander Sukharevsky, global coleader of QuantumBlack, McKinsey’s AI arm.
Effective AI implementation started with a fully committed C-suite and, ideally, an engaged board, according to Sukharevsky.
“Many companies’ instinct is to delegate implementation to the IT or digital department, but over and over again, this turns out to be a recipe for failure,” he said.
Organisations were also working to mitigate a growing set of GenAI-related risks and hiring for new AI-related roles while they retrain employees to participate in AI deployment, McKinsey reported.
More than three-quarters of respondents in the survey said they their organizations were now using AI in at least one business function and that the use of GenAI, in particular, was rising fast.
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