Worldwide generative AI (GenAI) spending is expected to total $644 billion in 2025, an increase of 76% from 2024, according to a forecast by the technology research and advisory firm Gartner Inc.
"Expectations for GenAI's capabilities are declining due to high failure rates in initial proof-of-concept work and dissatisfaction with current GenAI results," said John-David Lovelock, distinguished VP analyst at Gartner.
"Despite this, foundational model providers are investing billions annually to enhance the size, performance and reliability of GenAI models. This paradox will persist through 2025 and 2026.
Ambitious internal projects from 2024 will face scrutiny in 2025, as chief information officers (CIOs) opt for commercial off-the-shelf solutions for more predictable implementation and business value.
"Despite model improvements, CIOs will reduce proof-of-concept and self-development efforts, focusing instead on GenAI features from existing software providers," said Mr Lovelock.
GenAI spending is poised for significant growth across all core markets and submarkets in 2025. GenAI will have a transformative impact across all aspects of IT spending markets, suggesting a future where AI technologies become increasingly integral to business operations and consumer products.
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.
Gartner's spending forecasts are based on rigorous analysis of sales by over 1,000 vendors across the entire range of GenAI products and services.
"The market's growth trajectory is heavily influenced by the increasing prevalence of AI-enabled devices, which are expected to comprise almost the entire consumer device market by 2028," said Mr Lovelock.
"However, consumers are not chasing these features. As the manufacturers embed AI as a standard feature in consumer devices, consumers will be forced to purchase them."